The finance architecture options – overview


There is no right or wrong architecture, with different banks taking different approaches. However, there are a number of areas where there is a consensus of opinion on the way forward as well as general agreement about the overall aims. Some banks are seeking to build one huge data warehouse for all risk and compliance needs. Others are seeking to build a range of smaller data marts, perhaps one for each main business area, with these then accessed for risk and finance. Others are still taking the ‘tactical approach’ and seeking to bolt on solutions to their existing systems, perhaps extending the general ledger and then doing the reporting from here. On the whole, the industry is moving away from the latter approach, with the data requirements of today’s compliance being too great to make this a long-term sustainable strategy. As ABSA’s Dr Conor Hughes pointed out, ‘When Basel III, Basel IV come along, can we afford the same amount of money if we put in place point solutions?’ Silo solutions for each compliance requirement no longer make sense. Prior to defining the precise data repository architecture comes the need to work out what data populates whatever framework is devised. How does the organisation reach that ‘one version of the truth’ and how do existing systems and databases support this? There is likely to be a need to transform data from the transaction systems into a standard format, so bringing the need for some form of ETL tools as a transformation layer. As mentioned earlier, the interfaces need to be two-way, so that any adjustments made to data in the data warehouse or data marts is reflected back in the source systems.


A number of banks are also incorporating BPM tools as part of their overall solution (for instance, Dresdner Kleinwort Wasserstein and Commerzbank both went this way with French supplier, ILOG – now owned by IBM), with such a solution used to define, store and apply business rules outside of the accounting and application systems. Understandably, those organisations that have managed to put risk and operational theory into practice have tended to be smaller ones. This was the case at Daiwa Securities SMBC in London where it was possible to see an evolving architecture that includes a horizontal layer for accounting and risk reporting, and another, inherently linked, for static data, plus middleware to move the data across the organisation and support the underlying processes. Within such a shift, the core systems might be gradually decommissioned, with their roles being usurped by the horizontal layers and with a shrinkage of their scope as a result. Being relatively small was a clear benefit, said ex-


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technology division managing director, Graeme Muirhead, giving Daiwa Securities SMBC more chance of adopting such an infrastructure than larger players. At the same time, the bank isn’t so small that it cannot afford the necessary investment. Daiwa Securities SMBC Europe was a joint venture between Daiwa Securities Group and Sumitomo Mitsui Financial Group. It traded around 200,000 trades per month across fixed income, equities, repos, stock loans, and exchange and OTC derivatives. Its business is largely selling Japanese products into Europe on the one hand, and European products into Japan on the other. As


mentioned, the first phase of its project saw


the implementation of a single static data layer, using Goldensource’s platform, facilitated by Tibco’s middleware. The second involved implementation of a single sub-ledger layer, with Financial Architects’ FinStudio selected for this. This was being laid across Daiwa’s existing silos which were supported by an in-house, mainframe-based equity and fixed income settlement and general ledger system, Misys’ Summit for derivatives, GL Trade’s Ubix for futures and options (now owned by Sungard), Sungard’s GlobalOne for stock lending, and Fidessa for front office equities. The mainframe system, which was developed in Japan and had been in place since the outset at Daiwa Securities SMBC, was a particular problem, proving difficult and costly to maintain. However, it was felt that the challenge was not merely to replace this system with another. There was a much more strategic, back office reengineering project to be done, with a focus on data and systems integration. The production of company-wide management information was time-consuming, while company P&L, cost of carry, regulatory reporting and risk data consolidation were primarily done on an ad hoc basis, centred on Access databases and Excel. Another key issue was spiralling volumes in Daiwa’s vanilla business. Most investment in the previous few years had been in the front office, not middle or back, so that the operations side had become a bottleneck, with a lack of STP. There were multiple systems and IDs, a lot of paper, no statistics on the processes and no way to see the progress of a trade after the front office. Customers were becoming more demanding, seeking


faster response times and confirmations. There were also regulatory pressures, with a demand for greater transparency, control and security, with a constant stream of new regulations and controls. Away from the vanilla products, it was also taking a long while to take on new products. Setting up customer accounts or instruments was a laborious process.


Risk Management Systems & Suppliers Report | www.ibsintelligence.com


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