Spending on risk and compliance by financial institutions is increasingly wasteful and ineffective due to the absence of enterprise data standards, according to a survey conducted by the Economist Intelligence Unit (EIU) on behalf of consulting and systems integration firm BearingPoint.
BearingPoint says without addressing data management issues, the financial services industry could struggle to complete mergers or acquisitions, or achieve overall growth of any kind.
Survey respondents cited costs and a lack of standardised data models as the two biggest obstacles to effective integration. Only 18% of respondents said their risk applications linked up with CRM systems, while just 37% said their risk software linked with customer data repositories. Less than 50% said risk systems link up with enterprise-wide financial general ledger and MIS systems.
Christopher Formant, BearingPoint's EVP, financial services, says firms have "reached a 'tipping point' where their spending has become reactionary and ineffective because across enterprises, operating and data management structures are in direct conflict with risk management structures".
Formant says the study shows that a majority of financial firms believe that their current governance is not capable of addressing both risk and compliance, which triggers more spending. But existing customer initiatives such as customer relationship management (CRM) and risk management systems can be utilised to help comply with Basel II, USA Patriot Act and Sarbanes-Oxley regulations as these initiatives have overlapping data, process and technology requirements.
BearingPoint says data convergence is the key component of many firms' technology strategies this year and includes not only re-use of existing data across different business applications, but also the development of new, converged data models.
More than 190 executives responded to the survey from across the globe, representing the following regions: Western Europe 26%, Eastern Europe 6%, Asia-Pacific 22%, North America 25%, and Latin America 9% with 11% from the Middle East and Africa.
A separate study by PricewaterhouseCoopers and the EIU suggests that financial institutions have equated good corporate governance with meeting the demands of regulators rather than improving the quality of management.
In a survey of 200 senior executives, 69% agreed that they now had a more systematic process of managing risk in place. However, a noticeably lower proportion of respondents agreed that the board had access to more forward-looking information than before and that there had been a substantive change in the quality of data and metrics available to management.
Says PwC: "It appears that change has occurred by the desire to comply with regulations rather than to improve the institution's management tools."