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August 22, 2011updated 05 Jun 2017 11:36am

Beware back-office neglect

Front-end systems are occupying private banks efforts and spending on IT infrastructure, but industry consultants point to a worrying lag in back-office systems Alison Ebbage looks at the importance of data management and outsourcing in the second part of our IT special. What is the use of a shiny new front-end client-facing system, if the data that feeds the front end is not reliable and timely

By Alison Ebbage

Front-end systems are occupying private banks’ efforts and spending on IT infrastructure, but industry consultants point to a worrying lag in back-office systems. Alison Ebbage looks at the importance of data management and outsourcing in the second part of our IT special.


What is the use of a shiny new front-end client-facing system, if the data that feeds the front end is not reliable and timely? Up to now, private banks have pushed these thoughts on to the back burner.

But decreased margins and increasing regulatory requirements are putting pressure on cost-income ratios, and are asking serious questions of private bank’s back end bits.

One of several key areas for attention coming out of PwC’s 2011 global private banking and wealth management survey is the “operational lag effect” on changes in back-office systems, says Jeremy Jensen, PwC’s global private banking and wealth management leader for EMEA.

PwC research uncovered that banks are not investing enough in improving back-office systems and technology platforms.

Instead, many are choosing to put more effort and resources into client-facing areas. A quarter of respondents said they were still using older legacy systems with manual interventions, including Excel spreadsheets, in some areas.


Legacy system overload

There remains a great deal to be done to remove legacy and manual systems, and cost-income ratios will remain stubbornly high unless institutions deal with their systems and operational infrastructures, PwC says.

Lynne Landau, product manager for private wealth management at packaged banking software provider Temenos, says private banks know they will not get the full benefit of an upgraded front end unless the middle and back end are also in good order.

“It is all about how different parts of an organisation deal with each other in a timely and accurate way,” says Landau.

Moves are being made towards increasing the strength of the middle office platform to best provide robust data management. But given the current focus on the front end and the fact that private banks are driven by business, not IT needs, this is an area that has yet to receive a great deal of investment.

Chart showing banks behind other industries with legacy software problems


Data demands

One concern is the way data flows between middle and front end. Traditionally it has been held in a mix of silos according to function, including tax, loans and investments.

But now there is a pressing need to bring data from different areas together and present it cohesively in a consolidated form as clients demand more cohesive reporting and banks want a single customer view.

Data also needs to be available no matter what the access point, and be as up to date as possible.

It is all about master data management. It is about taking data out of silos, storing it centrally, then being able to send it back to the silos in a suitable format and on demand.

This sort of solution is generally based on service-orientated architecture (SOA) which works on the principle of a central data hub feeding, and being fed by, a series of spokes – the silos.


Multiple access points

Martin Engdal, director of business development and product marketing at portfolio management and front-end solutions supplier Advent, says data needs to be made available over a variety of access points.

“It also needs to be in as real time as possible, to reflect the fact that clients might choose to access their portfolios at any time,” he says.

“An overnight update is no longer acceptable, and making data flows available in as close to real time as possible is a significant challenge to be overcome if multi-channel front-end access is to add value,” he says.

In addition, data must be trustworthy and verifiable. Banks must be able to see the data’s journey and be able to fully track any changes and calculations that have been applied along the way.

This is not as straightforward as it seems, given that a more sophisticated front end will inherently create more data and feeds that need supplying, as well as storage space.


Is data safe?

In turn, issues arise over how to derive value from data. If data output is not reliable then the whole trust-based banking relationship is negated.

Compliance also becomes an issue if data is not verifiable and trustworthy.

“If you have lots of systems interfacing with each other, the potential for data mismatch and missed integration paths becomes greater,” says Dominic Sanna, sales manager at investment management systems provider Simcorp.

“You then get a downstream inaccuracy effect on other processes, says Sanna.”

Peter McKenna, market development director at data management and asset servicing and distribution solutions provider DST Global Solutions, points out that with regulation on the rise, middle and back office systems need to be more robust.

“In many cases, regulators require certain levels of frequency for reporting operating parameters and that these parameters need to be within certain tolerance,” he says.

“This means that process downtime or errors in the data, whether caused by system interfaces or humans, must be kept within limits. Middle and back office systems need to be reliable and consistent in terms of performance (speed and efficiency in processing, regardless of size of data), and be timely.”

Client confidentiality is also essential. Where Chinese walls are required they must be fully functioning and up to date. Indeed banks will do anything to defend reputational risk and data management, and security is high up the list of priorities.

Box story about RBS's system upgrades



Show me the data

For private banks, the strong push to get better front ends relies on the core banking system being able to feed it customisable, real-time, verifiable data through having a robust archive, and by managing the data well.

The challenge of providing these components is significant, considering the patchwork of legacy systems that many are still living with, as alluded to in PwC’s report.

Accordingly, the trend is to at least look to full-scale single-vendor solutions.

This is especially so if the solution is SOA-based, and can be done gradually by installing the central hub, then replacing other systems one by one.

This lessens the pain of a big bang solution and also means a phased integration can resolve any sticking points.

“Clients are more willing to look at a full-scale solution,” says Engdal. “They have got to the point where everything is so patched that systems are no longer fit for purpose and it is actually less complex to start over.”

Mark Dunleavy, financial services manager at data integration provider Informatica, adds: “Clients might like to take on lots of best-of-breed solutions, but generally a best-of-breed solution will be best in its specialised area, but distinctly average elsewhere. In fact, using lots of best-of-breed vendor solutions has led us to the current state of affairs, with siloed data and systems patched together.”


Best-of-breed system bugs

The other issue with using best-of-breed solutions is that although they provide a function, they do not take care of the data management within that function.

Private banks should then consider starting off with a best-of-breed data management platform or infrastructure hub, as is the case with an SOA solution, and build out function by function, with the ability to connect to existing systems and third parties in the meantime.

Although a phased approach with SOA platforms is popular, not all choose to go down that route. RBS Wealth Management is one currently in the midst of a big-bang system overhaul to adopt a complete front-to-back solution for its UK operations (see box, below).

Yet the PwC survey warns that although vendors are increasingly offering a package that fits up and down the value scale, few private banks have found success with such a system.

The survey reports that using a full-scale solution invariably means losing some of the bespoke functions that an individual private bank might want.

The devil is in the detail, the survey warns. Cost-income reduction is a necessary pursuit for banking heads but one eye must remain on maintaining all-important client trust.

Box story about whether outsourcing is a cost-cutting champion

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