21 October 2014

Colin Day

Colin Day - SunGard

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Operational Risk Management

To share information, ideas and experience relating to all aspects of op-risk management and compliance with Basel II

We live in exception'al' times

18 September 2008  |  3702 views  |  1

 Exceptions are the curse of the payments industry;

They are the risk
They are the cost
They are the operational inefficiency

As an industry we need to apply the same level of technology to the exceptional payment as we have to those that flow straight through our processing infrastructures.

Having just come from the sibos session 'Implementing SWIFT's solution for Exceptions and Investigations: Sharing Experience' I thought I would share my thoughts on the subject and look at the role of the packaged solution.

With the SWIFT solution being made up of 16 XML messages  supporting 4 exception types wrapped and governed by an industry rule-book, it is plain to see that banks will have to undertake a level of process re-engineering if they are to leverage the solution.

Yet the flows involved are not proprietary, it will be the bank's ability to generate and process the messages, in a timely manor, that will the differentiator.

Put another way, it is the way in which a bank services its customer that will define their ability to attain and retain business.

Through the deployment of software applications that encompass the concept of a standard package, a set of predefined business configurations, a bank is able to decrease its time to market, whilst also removing the non proprietary work.

Different customers required differing things from an Exceptions and Investigations solution but all will be required to adhere to the messaging standards and supporting rulebook.  At a bare minimum there will be a disruption to the existing Exceptions and Investigations work for all banks over the coming years.

More and more banks are targeting a 12 - 18 months return on their investments on their investment.  Justifying the budget for the implementation of a cross-functional rules based application from the start may not always be possible.

Many banks are looking for departmental or branch level solutions, due to exception volumes, budget or time-to-market constraints.  At the same time there is the requirement for a scalable solution that can start off as a stand alone tool or semi-integrated application that can grow and evolve into a fully integrated solution over time.

For these types of organizations help is still at hand, an 'out of the box' or packaged solution is probably the better option.  These types of solutions typically require a much smaller technology footprint than the enterprise-wide alternatives but still ensure the bank can adhere to the SWIFT message standards and rulebook.  And, most importantly in this cost focused world, the packaged solution is a cost effective means to supporting the initiative.

As part of a packaged solution a bank should expect to get full life-cycle control of the 4 defined exception types.  During the coexistence period it is vital that any solution that is deployed also supports the current FIN based messages.

There are other must haves;

Simply 'reading' the SWIFT for Exceptions & Investigations messages is not really an option as the new MX messages are rather complex.  This means that some kind of form based interface is a must for the creation of outbound messages as well as a way to view all inbound data and any associated cases.

Something else to keep in mind when selecting an Exceptions and Investigations solution is the time it takes to implement.  One of the key benefits of a packaged solution is the reduced amount of time and configuration required to get a system live.  An implementation project of between 4 - 8 weeks is not an unreasonable timeframe, depending upon the level of automation and the number of back-office systems you are looking to integrate with.

No one really knows what the bank of the future looks like.  There are new entrants emerging all the time, the likes of Tesco PLC, Walmart, PayPal and Zopa, but to mention a few, but certainly not your typical bank.

All typically have extremely competitive product pricing, all have low-overheads and a lack of legacy technologies to slow them down.  They are all grabbing marketshare.

To stop the customer 'hedging' and spreading their business across providers banks need to scour the customer and technology trends that are transforming other industry sectors and segments and consider where and how they can be applied.

Banks need to focus on customer service and satisfaction.

Today's markets require a more proactive view of risk and return, going beyond simple regulatory compliance.  Banks need to implement proper control procedures and systems to meet regulatory and corporate governance needs. whilst minimizing the costs of compliance and maximizing margins.  The focus on exceptional and errant transactions is all part of such a program.

Within most organizations business processes will change over time.  This may be a result of changes in back-office systems, messaging standard, market needs or regulations.

This means that any system deployed needs to be agile if it is going to continue to add value to the organization.  Additionally, over time volumes of transactions are bound to increase and with this the number of exceptions will rise.

A bank may wish to start off small, focused on say the payments products, yet there are other exceptions that occur elsewhere within the enterprise.  Other areas of the bank may also benefit from and Exceptions and Investigations tool so having a solution that can be tailored to meet these needs through a flexible data model is a huge benefit.

One fundamental requirements for achieving end-to-end STP is the automation of the exception resolution process.  Did you know that 80% of the effort involved in the exception resolution process is consumed by the task of researching the original payment instruction?  So, automating some or all of that task has a direct impact upon the time, cost and risk associated with any investigation.  This should be kept in mind when going through the evaluation of any application.

The 'out of the box' or packaged solution needs to offer scalability and customization providing the bank with what it needs today but positions it for whatever tomorrow brings.

Banks are facing extraordinary challenges.   Whether it is from a branch around the corner, a multinational or a non-bank, competition for customers is fierce.  Products are commoditized, margins are shrinking, transaction volumes are increasing and regulatory burdens keep growing.

To stay ahead, a bank needs an innovative thinking combined with the right pragmatic approach to transforming its business.  Technology has a key role to play in creating efficiencies whilst providing the agility to change.  And the bank needs a partner that can help it get there.

The overriding message of the sibos session was that the vendor community, in partnership with SWIFT, have the tools and solutions to support the banking community in the area of exceptions processing.

We encourage you to look ahead and move forward, never look back.  Your past does not reflect your future.  Its really a question of how far you want to go and how quickly you want to get there.

TagsPaymentsSibos

Comments: (1)

A Finextra member | 19 September, 2008, 18:20

In general, Financial Institutions have been late in adopting "today's" technologies. Most of them could improve a lot in this area!

Yes, automated and effective Exception Processing (EP) solutions would help. However I believe, having an integrated Business Intelligence capability will add more value to EP solutions.

I liked your last paragraph!

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name

Colin Day

job title

Vice President - Global Banking Solution

company name

SunGard

member since

2007

location

London

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I am currenty a member of the product strategy organization for the SunGard Banks & Corporations ...

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