Murex was voted overall number one technology vendor in the Risk Technology Rankings 2016. Chief marketing officer Stella Clarke explains how exploiting technology can cut costs, soften the impact of regulation and align short- and long-term goals.
Banks are facing a number of new market challenges; what are likely to be the most significant of these that banks will face over the next 12 to 18 months?
Stella Clarke: In the coming months, the Fundamental review of the trading book (FRTB) will continue to be a core priority for banks. Regardless of delays, they will have no choice when it comes to complying with FRTB. This regulation requires the quick and efficient delivery of an FRTB programme that will enable banks to clearly understand the impact of the regulation on their business. They need the correct tools that will allow them to remain profitable in a highly competitive capital markets landscape, and we see this as just the beginning of a long run of new compliance requirements for banks.
In addition, data handling has become increasingly important and will continue to be a top priority this year. To ensure compliance with FRTB, and other regulations such as the standard initial margin model and the Markets in Financial Instruments Directive, banks will require a precise and powerful calculation engine, as well as modelling for trade and risk factors. In the past, loose approximations were not uncommon, but this is no longer acceptable. There is a need to look at the whole activity of the bank; this, in turn, requires instant access to a massive volume of calculation, which raises performance challenges for many banks.
Efficient cost management will be another key challenge facing banks. Banks today are aware that they need to streamline certain activities, focusing on strategic areas. They also realise the importance of investing in the correct technology today, in order to benefit from reduced total cost of operations in the future.
How can banks respond to these challenges?
Stella Clarke: Aligning short-term regulatory compliance needs with long-term performance objectives while keeping costs to a minimum is key. The importance of the correct IT infrastructure comes into play here.
Today, big banks are beginning to move away from the classical approach to technology systems where individual systems catered to individual business functions, to taking a platform approach to their technology requirements. This is a shift from the traditional silo approach, as banks realise that they do not have all the elements and they need expert external support.
Mutualisation is an appealing option; the benefits of this approach include significant cost and risk reductions for banks in the long run. Multi-bank technology and operating models enable smaller banks to access solutions that would otherwise be considered too costly.
One example is Bankdata, an IT service provider owned by 11 Danish banks that selected Murex’s MX.3 platform in 2016 as a central service utility. The decision to rationalise on a single technology solution was driven by regulatory compliance requirements, as well as the need to reduce ownership costs. MX.3 offered all the functionality the bank required for its capital markets operations.
Over the coming years, what new technologies will help banks meet future challenges?
Stella Clarke: From a client perspective, new technology provides fresh ways through which clients can optimise the way they operate. However, there are often misconceptions around new technologies, particularly in discussions surrounding the cloud and blockchain. Therefore it is important to look at the possible underlying usage of these new technologies.
Harnessing new technology is a logical step for financial institutions that are looking to control costs. Cloud technology will allow clients to leverage the full power of the MX.3 solution without paying the full infrastructure cost. We also see that the rise of blockchain is an important development that will impact how both banks and technology vendors conduct business in the future.
In the financial market today, what are clients demanding from their technology vendors?
Stella Clarke: Murex is aware that regulation will have a very significant impact on our clients. Our comprehensive MX.3 solutions have been developed to effectively support financial institutions as they navigate the challenging capital markets. From a client perspective, it is all about credibility. If they believe we have a solid offering that will adapt and grow with changes in the market, they will decide to make the long-run investment in the MX.3 platform.
An important step Murex has taken to help our clients is to partner with expert integrators. We are very aware of the importance of reliable integration partners in helping clients to meet the challenges in today’s capital markets. There is a strong need for highly specialised integrators to ensure the success of complex transformation projects.