THE STATE OF GLOBAL FINANCIAL SERVICES IT ARCHITECTURE…
This blog has time & again discussed how Global, Domestic and Regional banks need to be innovative with their IT platform to constantly evolve their product offerings & services. This is imperative due to various business realities – the increased competition by way of the FinTechs, web scale players delivering exciting services & sharply increasing regulatory compliance pressures. However, systems and software architecture has been a huge issue at nearly every large bank across the globe.
Regulation is also afoot in parts of the globe which will give non traditional banks access to hitherto locked customer data. E.g PSD-2 in the European Union. Further, banking licenses have been more easily granted to non-banks which are primarily technology pioneers. e.g. Paypal
It’s 2016 and Banks are waking up to the fact that IT Architecture is a critical strategic differentiator. Players that have agile & efficient architecture platforms, practices can not only add new service offerings but also able to experiment across a range of analytic led offerings that create & support multi-channel offerings. These digital services can now be found abundantly areas ranging from Retail Banking, Capital Markets, Payments & Wealth Management esp at the FinTechs.
So, How did we get here…
The Financial Services IT landscape – no matter the segment – one picks across the spectrum – Capital Markets, Retail & Consumer Banking, Payment Networks & Cards, Asset Management etc are all largely predicated on a few legacy anti-patterns. These anti-patterns have evolved over the years from a systems architecture, data architecture & middleware standpoint.
These anti-patterns have resulted in a mishmash of organically developed & shrink wrapped systems that do everything from running critical Core Banking Applications to Trade Lifecycle to Securities Settlement to Financial Reporting etc. Each of these systems operates in an application, workflow, data silo with it’s own view of the enterprise. These are all kept in sync largely via data replication & stove piped process integration.
If this sounds too abstract, let us take an example & a rather topical one at that. One of the most critical back office functions every financial services organization needs to perform is Risk Data Aggregation & Regulatory Reporting (RDARR). This spans areas from Credit Risk, Market Risk, Operational Risk , Basel III, Solvency II etc..the list goes on.
The basic idea in any risk calculation is to gather a whole range of quality data in one place and to run computations to generate risk measures for reporting.
So, how are various risk measures calculated currently?
Current Risk Architectures are based on traditional relational databases (RDBMS) architectures with 10’s of feeds from Core Banking Systems, Loan Data, Book Of Record Transaction Systems (BORTS) like Trade & Position Data (e.g. Equities, Fixed Income, Forex, Commodities, Options etc), Wire Data, Payment Data, Transaction Data etc.
These data feeds are then tactically placed in memory caches or in enterprise data warehouses (EDW). Once the data has been extracted, it is transformed using a series of batch jobs which then prepare the data for Calculator Frameworks to which run the risk models on them.
All of the above need access to large amounts of data at the individual transaction Level. The Corporate Finance function within the Bank then makes end of day adjustments to reconcile all of this data up and these adjustments need to be cascaded back to the source systems down to the individual transaction or classes of transaction levels.
These applications are then typically deployed on clusters of bare metal servers that are not particularly suited to portability, automated provisioning, patching & management. In short, nothing that can automatically be moved over at a moment’s notice. These applications also work on legacy proprietary technology platforms that do not lend themselves to flexible & a DevOps style of development.
Finally, there is always need for statistical frameworks to make adjustments to customer transactions that somehow need to get reflected back in the source systems. All of these frameworks need to have access to and an ability to work with terabtyes (TBs) of data.
Each of above mentioned risk work streams has corresponding data sets, schemas & event flows that they need to work with, with different temporal needs for reporting as some need to be run a few times in a day (e.g. Traded Credit Risk), some daily (e.g. Market Risk) and some end of the week (e.g Enterprise Credit Risk)
Illustration – The Five Deadly Sins of Financial IT Architectures
Let us examine why this is in the context of these anti-patterns as proposed below –
THE FIVE DEADLY SINS…
The key challenges with current architectures –
THE BUSINESS VALUE DRIVERS OF EFFICIENT ARCHITECTURES …
Doing IT Architecture right and in a responsive manner to the business results in critical value drivers that that are met & exceeded this transformation are –
A uniform architecture that works across of all these various types would seem a commonsense requirement. However, this is a major problem for most banks. Forward looking approaches that draw heavily from microservices based application development, Big Data enabled data & processing layers, the adoption of Message Oriented Middleware (MOM) & a cloud native approach to developing applications (PaaS) & deployment (IaaS) are the solution to the vexing problem of inflexible IT.
The question is if banks can change before they see a perceptible drop in revenues over the years