DATA INTEGRATION

COMPLEXITY

Accenture 2014 High Performance Finance Study

Banking Report

1

Six years after the financial crisis, banks continue to contend with spiralling complexity. They must cope with ongoing tightening of regulation, and keep shareholders satisfied despite a difficult market backdrop. Internally, they are struggling with organizational models for their risk, finance and operations that may not be aligned with new realities, as well as poorly integrated data that lacks consistency. Transformation and regulatory requirements are creating new demands for talent. At the same time, growth is back on the agenda following a protracted period of cost control. In order to respond effectively to these shifts, banks need to be able to measure the benefits of business transformation. Finance has a key role to play in meeting these challenges.

Our 2014 High Performance Finance Study comprised surveys of more than 600 senior finance executives across the globe and key sectors—of those, 13% were from banking. We also conducted interviews with a number of chief financial officers (CFOs) and other senior finance professionals from the banking sector.1

2

Figure 1. The top challenges according to banking respondents are internal-based

Finding 1: Complexity is a key challenge

Banks worldwide face an environment of spiralling complexity. They must contend with the ongoing fall-out from the financial crisis, and a barrage of local and global regulation. Capital requirements are becoming far more stringent, forcing banks to rethink their business models and key strategic priorities. At the same time, they are under pressure from shareholders to grow revenue streams, increase market share and maintain margins against a highly challenging market backdrop.

Internal management and technology challenges are compounding this complexity. Asked about the key challenges they face as a senior finance executive, respondents from the banking industry point to complex

legacy systems and environment as their number one obstacle. This makes it extremely difficult for them to meet regulatory demands, and derive the information and insight that will help them run their business effectively. Other aspects of complexity also loom large. Finance leaders in the industry say that they find it very challenging to manage the complex needs of all their stakeholders, including the board, regulators and rating agencies.

In the banking industry, complexity cannot be avoided – indeed, it is a natural by-product of growth and success. High-performance businesses must therefore find ways of managing complexity – for example, by standardizing and optimizing processes to streamline and simplify the organization.

Which of the following are your greatest challenges as a senior finance executive?

Complex legacy systems and environment

Finding and retaining a skilled finance workforce

The need to optimise the capital structure of the enterprise

Managing the complex needs of all stakeholders (board of directors, investors, etc.)

Managing new and complex financial, business and operational risks

Lack of integration between corporate vision, strategy, operating plans and reporting processes

Adapting the service model to align with business strategies and improve performance

Insu­cient funding to enhance the finance function’s capabilities

Lack of value-orientated culture and finance acumen throughout the enterprise

Inadequate access to appropriate enterprise-wide performance management information

Source: Accenture 2014 High Performance Finance Study, banking respondents, September 2014

Converting increased volumes of data into business insight to meet the speed required for decision making

The need to support complex enterprise operating models, making process standardisation di­cult across finance

Not enough time to focus on value-oriented finance capabilities due to high level of manual work, attention on controls or regulatory requirements

46.3%

43.9%

40.2%

32.9%

32.9%

31.7%

29.3%

26.8%

23.2%

23.2%

22.0%

22.0%

17.1%

“Our business has been impacted by the macro-economic environment, the prudential regulatory environment, a loss of public trust in financial services, and increased competition. As a CFO the issue is weighing these up and working strategically within the business to position yourself accordingly – your risk profile and the shape of your portfolio – while monitoring which investments to choose and which to avoid. It is a complex environment.”Scott Butterworth, CFO at National Australia Bank Group Europe

“Reducing complexity, through standardization and centralization, is essential in order to achieve objectives.“Jochen Hauser, Head of Data Governance at UniCredit Bank Austria

“Managing the complexity of reporting requirements is key. We stratified our dataflows, moved to standardized business software and improved reporting flexibility by upgrading our single transaction data warehouses.” Hans-Ulrich Bauer, Head of Group Reporting and Taxes at Helaba

3

Finding 2: Banks continue to struggle with silo-based organizational model and governance

Many banks continue to struggle with a silo-based organizational model for their risk, finance and operations. After access to talent, respondents cite this as the biggest challenge they face in addressing new risk, regulatory and compliance requirements.1 With limited alignment across these functions, managing complex regulatory requirements is highly challenging. At the same time, these banks struggle with extracting information in a consistent way to influence their decision-making.

Regulation, in particular, is driving banks to address this problem. At the moment, almost one-third of banking respondents say their risk, finance and operations remain siloed, with limited governance over regulatory reporting processes. But, over the next two years, they have a clear aspiration to move away from this model. Currently, just 12% say that they have an enterprise-wide regulatory reporting center but, in two years’ time, 48% expect to be at this level.1

A centralized regulatory office such as a center of excellence (CoE) offers banks the opportunity to manage the impact of new regulations in a more efficient way. Rather than responding to each new piece of legislation in an ad hoc way, a CoE enables banks to leverage existing capabilities, adopt a consistent approach to compliance and provide greater transparency over the management of regulation across the enterprise. A key question for banks, however, relates to which activities they should migrate to the CoE. Some might have enterprise-wide services, but others may only choose to migrate a small proportion of processes there. Over time, this can change as the CoE becomes more established and well resourced.

Figure 2. Access to talent and issues around applications and processes are key challenges in addressing risk, regulatory and compliance requirements

Figure 3. Banking respondents show strong desire to move to an enterprise-wide regulatory CoE

What are your organization’s key challenges in addressing new risk, regulatory and compliance requirements?

Access to talent with knowledge of business and regulatory impacts

Silo-based organization model and governance

Lack of su�cient dedicated resources

Lack of integrated applications and processes

Insu�cient granularity and quality of data

Poor integration with existing finance and risk processes

Inability to adapt quickly enough to meet regulatory changes

Note: Percentage of banking respondents ranking 1, 2 or 3Source: Accenture 2014 High Performance Finance Study, banking respondents, September 2014

Lack of executive sponsorship/alignment

Insu�cient modeling capability

Lack of data standardization across risk, finance and operations

7.3%

7.3% 7.3%

4.9%13.4%

32.9% 13.4% 6.1%

12.2% 9.8% 11%

6.1% 14.6% 12.2%

6.1% 9.8% 8.5%

8.5%

6.1% 9.8% 8.5%

6.1%

1

8.5%

8.5% 25.6% 13.4%

2 3

3.7%

18.3%1.2% 0%

Which of the following best describes your organization’s risk, regulatory reporting and compliance organization model now, and what is the target model in two years’ time?

Source: Accenture 2014 High Performance Finance Study, banking respondents, September 2014

32.9%

12.2%

54.9%

11.0%

47.6%

41.5%

Risk, finance and operations are siloed organizations with limited governance over regulatory (e.g. Fed, FCC, OCC, etc.) reporting processes

Regulatory reporting governance model in place across risk finance and operations

Enterprise-wide regulatory reporting centure of excellence with a single governance model

Now In 2 years

“Optimized analysis of data is an important topic not only today but also in the future as complexity, cost pressure and informational needs are increasing. In this context and as a prerequisite increased data quality is paramount.” Dr. Jochen Sutor, Head of Group Finance at Commerzbank AG

4

“There’s been a huge push in the last 18 months to get the [enterprise] functions to start thinking as one team. That’s been a hugely complex journey and will remain so because the functions developed their own infrastructures as they grew within their respective businesses. Within

finance, we’ve certainly made in-roads on the journey to one team, and I’m expecting even more [change] over the next 18 months to progress to our desired end state.” Shane Hawkins, COO Finance at Barclays

5

Finding 3: Data remains poorly integrated and lacks consistency in many banks, but there is a strong desire to address this

Regulatory pressure is forcing banks to address some of the data shortcomings that have long been a problem in the industry. In January 2013, the Basel Committee published its Principles for Effective Risk Data Aggregation and Risk Reporting, which are designed to enhance banks’ ability to aggregate their risk exposures and enable them better to measure their performance against their risk tolerance and appetite.2 This adds to a long list of regulations that include new data requirements, including the US Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) and the European Union’s Common Reporting (COREP) and Financial Reporting (FINREP) standards.

Although many banks are making progress, there is still much to be done. Currently, 40% of banks responding to our survey say their processes are highly manual, with limited data lineage across multiple data sources. Insufficient granularity of data is also cited as a challenge in addressing risk, regulatory and compliance requirements, according to respondents.

In two years’ time, just 11% of bank survey respondents expect to rely on manual processes with limited data lineage across multiple data sources. There is also a strong trend towards a more holistic model. Today, just 7% say that they have a single enterprise-wide finance and risk repository but, in two years’ time, the number that expects to have this in place rises to 40%.1

Figure 4. Strong aspirations for banking respondents to adopt more holistic processes in two year’s time

“Around building better data, we are focusing on data governance, which is being clear on what good data is, which is that it must be complete, accurate and appropriate. That’s the central pillar. The next piece is data culture, which is working with the businesses to both inform them about the requirements of good data, and to hold them accountable for providing good data. Additionally, we have a target architecture that we want to migrate to over time, which will improve the way in which we handle and utilize data, so there’s a job of work to be done to migrate the company towards that data architecture over time. Underpinning this is an operating model that supports a cross-enterprise perspective on data, so we’ve put in place data owner groups.” Scott Butterworth, CFO at National Australia Group Europe

Which of the following best describes your organization’s current risk, regulatory reporting and compliance processes, technology and data architecture, and what is the target model in two years’ time?

Source: Accenture 2014 High Performance Finance Study, banking respondents, September 2014

40.2%

7.3%

52.4%

11.0%

40.2%

48.8%

Highly manual processes with limited data lineage across multiple data sources. Inconsistent finance and risk data model and repository

Some common data repositories, data models, processes, application/data warehouses and reporting exist between finance and risk

Single enterprise wide finance and risk repository, data model, processes, applications/data warehouses and reporting

Now In 2 years

6

Finding 4: Senior finance executives point to talent scarcity as a key barrier to finance function performance

Regulatory requirements, and the scale of transformation that many banks are undergoing, have added significantly to the human resources challenges facing the banking sector. Competition for skilled risk, regulatory and compliance professionals has become extremely intense. Many banks simply do not have the capabilities within the traditional risk organization, and therefore need to hire externally or develop the skills within their existing team.1

Banks in our survey cite talent as the number one challenge they face in addressing new risk, regulatory and compliance requirements (Figure 2). And, compared with the global sample, they are almost twice as likely to point to finding and retaining a skilled finance workforce as one of their greatest challenges as a finance executive. This is also a greater challenge when compared to respondent peers in the Capital Markets and Insurance sectors.

Attracting and retaining the talent that is needed has become a major long-term challenge. As regulatory demands intensify, more skills and capabilities are required, but the pool of talent is simply not growing quickly enough to meet demand. It is especially challenging for banks to find risk and compliance professionals who combine the necessary technical knowledge with the ability to understand the broader business drivers and communicate these at a senior level.

Finding 5: Banks are turning their attention to growth after a longstanding focus on cost control

In the wake of the financial crisis, the growth agenda at many banks was put on hold. But, as the industry enters a period of greater stability, they are once again investing and seeking new market opportunities. Currently, more than four in ten respondents say that their organization’s overall focus is on cost control. But, in two years’ time, this decreases to just 13%. Equally, the proportion that is focused primarily on investment in growth-oriented activities will increase from 37% to 51%.1

Finance leaders are also playing a bigger role in growth – among our sample within banking, 58% say that their influence in identifying growth opportunities has increased, compared with 45% for respondents from the global 2014 High Performance Finance Study. As banks once again turn their attention to growth, they will need to leverage the investments they have already made in initiatives such as Know Your Customer (KYC) and anti-money laundering (AML). These requirements mean that banks now have access to a wealth of transactional data that can also be used to drive growth. With this information at their fingertips, banks should be better able to cross-sell and identify their most profitable customers.

Figure 5. Over the next two years, a solid shift to growth

“It is necessary to work on both ends: increasing earnings through growth while keeping a tight control on costs.” Dr. Jochen Sutor, Head of Group Finance at Commerzbank AG

“Finance has become much more useful to the enterprise over the last three years, for two reasons. The first is that we’ve done quite a lot of reshaping of finance to increase its effectiveness.. And then the second driver is around what finance has been bringing to the table in terms of economic insight, and our view on the trade-offs between different sorts of approaches that for discussion as a business.” Scott Butterworth, CFO at National Australia Bank Group Europe

“In our current volatile business environment, the quality of the risk management tools plays a paramount role in managing the business. The CFO is expected to provide a detailed view on income, risks and expenses associated with individual customers or portfolios to the decision-makers in order to enable the business to navigate through this volatile environment.” Scott Butterworth, CFO at National Australia Group Europe

Which one of the following best characterises your company’s/organization’s overall focus today?

Source: Accenture 2014 High Performance Finance Study, banking respondents, September 2014

22.2%

40.7%

37.0%

36.4%

13.0%

50.6%

About evenly split between cost control and growth

Primarily on investment in growth-orientated activities (e.g. innovation, market expansion, etc.)

Primarily on cost control

Now In 2 years

7

Finding 6: Key aspects of transformation remain a real challenge for banks.

Regulatory pressures, and demands from other stakeholders, including investors and customers, are placing massive pressure on banks to transform their business. Yet, many organizations continue to find key aspects of business transformation challenging. In particular, they say they struggle to measure the business benefits of transformation.

In the context of responding to regulatory change, this has important implications. Banks need to move beyond a short-term, tactical approach to responding to regulation, and determine how they can derive broader business benefits from these initiatives. This involves moving beyond compliance to use these investments as a way of improving the management of the business. Banks in our 2014 High Performance Finance Study certainly have this aspiration. For example, 56% say that to a large extent, they will be able to use CCAR and Basel III capabilities to embed stress testing in such a way that it improves their capital and liquidity planning and management. Similarly, 55% say that they will be able to use these capabilities to align their regulatory/risk capabilities with business strategy processes to evaluate market options and drive growth.1

Figure 6. Measuring benefits of transformation is a challenge to banking respondents

Figure 7. Banking respondents see use of regulatory capabilities beyond compliance applications

Which of the following aspects of business transformation does your organization find most challenging?

Measuring the business benefits of transformation

Finding the resources to execute the transformation plan

Overcoming resistance to change

Reaching consensus among key stakeholders

Managing the change process

Achieving the profitability without increasing revenues

Note: Percentage of banking respondents ranking 1, 2 or 3Source: Accenture 2014 High Performance Finance Study, banking respondents, September 2014

Explaining the key benefits of the change to key external stakeholders

Building the business case for transformation

Identifying the right expertise to execute the transformation plan

43.9%

40.2%

39.0%

35.4%

31.7%

30.5%

25.6%

22.0%

“We are going through radical organization change. We have spent the last year and a half mapping out every single process across the financial piece, and we’re re-engineering every single one of them. Over the last few years we’ve reduced the finance cost base by about 24%, and the way we were able to do that is by re-engineering the process. We’re going to do the same again over the next few years. If you don’t re-engineer your processes, you’ll never be able to meet the challenge: to be cheaper, to deal with the regulators, and to free up the CFO to interface with the business.” Neil Smith, COO at Deutsche Bank AG

To what extent will your organization be able to use CCAR) and BASEL III capabilities to manage your organisation in the following ways?

Source: Accenture 2014 High Performance Finance Study, banking respondents, September 2014

56.1% 35.4%Embed stress testing considerations, as an established risk management capability, across the organisation to improve Capital and Liquidity and Management

Align business strategy processes and regulatory/risk capabilities to evaluate market options and drive growth

Leverage common data sourcing, modeling and reporting capabilities for performance management, risk management and regulatory compliance

To a large extent Somewhat Not at all Does not apply

3.7% 4.9%

54.9% 36.6% 3.7% 4.9%

51.2% 42.7%

Integrate Balance Sheet and P&L projections and risk stress testing as a base for enterprise and business plans and forecasts

47.6% 47.6%

6.1%

4.9%

BUSINESS TRANSFORMATION

8

GROWTH

TALENT SCARCITY

9

CONCLUSION

The finance function in the banking sector will continue to be challenged by complexity, and will need to find ways of managing it—for example, by standardizing and optimizing processes. These imperatives will drive CFOs to seek to tackle the problem of silo-based organizational models and governance, and to address the lack of integration and consistency of data. Competition for skilled risk, regulatory and compliance professionals will only intensify—attracting, retaining and developing talent will be a top priority.

Banks are set to step up investment and seek new market opportunities, and the CFO will play an increasing role in driving growth. The finance function also has an important part to play in guiding transformation efforts towards broader benefits for the business. The CFO will need to play the role of value architect, seeking to build capabilities for profitable growth, not just within finance but in the business more broadly.

SILOED OPERATIONS

GROWTH

10

NOTES1. “Accenture 2014 High Performance Finance Study, September 2014. Access at: http://www.accenture.com/us-en/Pages/insight-high-performance-finance-study.aspx

2. “Principles for effective risk data aggregation and risk reporting,” Basel Committee on Banking Supervision, January 2013. Access at: http://www.bis.org/publ/bcbs239.pdf

ABOUT ACCENTUREAccenture is a global management consulting, technology services and outsourcing company, with more than 323,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.

DISCLAIMER: This document is intended for general informational purposes only and does not take into account the reader’s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this document and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals.

Copyright © 2015 Accenture All rights reserved.

Accenture, its logo, and High Performance Delivered are trademarks of Accenture. 14-5644

STAY CONNECTEDJoin Ushttps://www.facebook.com/accenturestrategy

http://www.facebook.com/accenture

Follow Ushttp://twitter.com/accenture

Watch Uswww.youtube.com/accenture

Connect With Ushttps://www.linkedin.com/groups?gid=3753715