FRaCT Webinar Deck

Providing Value by Converging Finance, Risk, Compliance & Treasury (FRaCT) Information Initiatives

Sean O’DowdCapital Markets

July 31st, 2012

AGENDA

Topics discussed in this webinar include:

• Trends in converging finance, risk and compliance strategies• Understanding why these intersections are needed• How firms can begin to develop a cohesive information strategy for success

Financial services firms are reshaping how their finance, risk, compliance and treasury department processes, information and infrastructures are

aligned. External mandates have established the requirements, and business pressures have forced reaction:

• Does your firm understand the impacts of its financial and treasury decisions related to customers, transactions, or asset investments?

• Are conventional accounting (ledger), financing (capital), and treasury (cash/liquidity) practices yielding the desired outcomes while minimizing your firm's risk exposure?

These decisions are determining the course and success of strategies. Be it banking, capital markets or insurance, all financial firms will need to rely on their best information to make the best decision.

Financial Landscape Shifts Forces Change

• Global economic instability• Regulatory uncertainty• Volatility

04/18/2023

“Soul-searching is Job #1 at a lot of banks”

• Profitability (Margin) pressures• Risk exposure (Credit, IR, FX)• Time to market

External Factors (Macro)

Internal Factors (Control)

• Competition• Complexity• Demand (Securities)

• Complexity• Customer Mgmt. • Managing Liquidity • Operational Improvement

What is currently influencing the market and putting pressure on financial service firms?

Change Alters Priorities for Financial Services Firms

What are your firms investment priority areas?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Executive SearchManage File Transfer

GlobalizationTalent Management

Mobile BankingCollaborationSocial Media

VirtualizationCloud Computing

Busintess IntelligenceRevenue Drivers

Opertational ExcellenceAnalyticsMobility

Customer ExperienceIT Security

Risk ManagementCompliance

Within 12 Months Beyond 12 months

Compliance

Risk

Finance & Profitability

Source: IDC Financial Insights

Priorities Require Tighter Alignment to Optimize Goals

Finance & ProfitabilityEvaluate & enhance

financial performance • Continued cost reduction to

remain profitable• Integration of balance

sheet and portfolio capital management

RiskManage risks

• Measure and monitor risks across business lines, customers and securities

• Transparency & proof of process to regulators

TreasuryMaximize the firm's liquidity• Need to hold more capital

that impacts profitability (scare resource)

ComplianceEnsure the firm adheres

mandates• Implement mandates &

monitor fraud/non-compliance

• Streamline legal and audit processes

Divisions across groups remain

CultureData

DefinitionsPerspectives

Tasks

Required Transparency

Increased Need to Respond Quickly

Collaboration Between Business Units to Drive Synergies

Greater Cost of Regulation

Profitability Pressures & Ability to Forecast Results

Market Response So Far….

Financial Institutions are taking action:• Improved counterparty management• Integration of regulatory and economic capital• Daily/frequent stress testing with more complex

scenarios, more scenarios and more iterations• Extension into earning variance and volatility

testing• Greater operationalization of risk into

transactional decisions

Financial Institutions are developing more flexible and agile processes to respond to

unknown and evolving requirements

Impact of Getting It Wrong?

$5.8 billion and countingTo date, how much JPMorgan has lost on the trade put in place by the London Whale (aka Bruno Iskil)

"I think no matter how good you are, how competent people are, never get complacent in risk. Challenge everything” Jamie Dimon, CEO JPMC

$7 billion and 10 YearsAmount HSBC’s Mexican bank shipped in bulk cash to the firm’s U.S. bank in 2007 and 2008 for

laundering. Further, HSBC issued a 335-page report describing a decade of compliance failures by Europe’s biggest bank

David Bagley, HSBC’s head of group compliance, offers his resignation at HSBC’s Senate hearing

The Task at Hand is Extremely Challenging, Complex & Imperfect

5,350 Jobs ShedRecent announcement by three of the world’s largest banks due to industry struggles to adapt itself to

continuing economic woes and the advent of new regulation. More cuts anticipated.

“The whole industry faces structural change. The impact of OTC reform, Volcker and Basel III could lead to a 15-20 per cent headwind on revenues over the next two to three years” Analyst

24 million man-hours and $22 billionNumber of man hours estimated to comply with the DFA and the total number of expenses or lost revenue

for the 23 largest banks in the US from just two parts of DFA

“While the promised benefits of Dodd-Frank are still illusory, the costs are beginning to become crystal clear” Oversight and Investigations Subcommittee Chairman Randy Neugebauer

04/18/2023

Impact of Information OverlapsImprove Data Reuse, Question Depth & Analytical Insights

~70% of risk information can be reused for other business groups

Risk is moving from an oversight function to one embedded in everything

Siloed risk disciplines make it hard to bring together data, systems, organization to understand systemic risk

Infrastructure struggles to deal

with regulatory agility

Unknown requirements

from forthcoming mandates

Stricter polices requiring

transparency & proof of process

and data quality.

Optimize financial decisions

Manage risk with greater financial accuracy

Improve Short Term Liquidity: ex. Cash calls,

exposures, coverage

Improve longer term financial planning, risk

appetite & business

evaluation

Greater insights in positions and ability to cover

Financial reporting and performance management

Example Scenarios

• Capital Adequacy & Regulatory Reporting: Basel III, Dodd-Frank & CCAR (Comprehensive Capital Adequacy Review)

• Integration of balance sheet and portfolio capital management• Go forward integrated capital plan• B/S and I/S plans tied to risk portfolio loss, capital and stress test at lower levels

of granularity• US FED to review go forward capital plans that must include stress testing and

capital to cover all material risks• US FED can stop capital reducing activities like dividends and stock repurchases• Requirement to provide detailed position level data used for stress tests

• Pre-trade scenario analysis• Users call for trade, risk, liquidity data and would like to understand the impacts

to the G/L or balance sheet. The goal is to determine the merit of a trade with greater insight into broader exposure limits, cash to cover, ledger impacts and profitability.

• Onboarding• Integrated data store helps clear KYC requirements once (reduce duplication),

with a common identifier understand any existing cross-business product and service touch points. Then understand how profitable an existing customer is and the costs typically associated with providing services.

The Roadmap to Data Reuse & Change

Sustainability and

Continuous Improvement

Repeatable Incremental

Program

Technology Enablement

Roadmap and Prioritization

Cultural alignment and

governance

Business Driven

Vision and Strategy

New Initiatives are Changing the Way the Work Has to Be Done

• Common Challenges • More frequent and changing reporting increasingly requiring broader & more detailed data

• Not all required data is available in the Data Warehouse or ERP • Modelling/Analytics engines source data from multiple locations• Reports from multiple sources result in different answers and need to access multiple

systems • Data quality problems • Significant time spent on data validation and reconciliation

Infrastructures are Typically Tangled and Complex

Build and fund one step at a time

Detailed, Normalized Data

Logical View/Logical Data

Mart

Source Data

CUSTOMER

CUSTOMER NUMBERCUSTOMER NAMECUSTOMER CI TYCUSTOMER POSTCUSTOMER STCUSTOMER ADDRCUSTOMER PHONECUSTOMER FAX

ORDER

ORDER NUMBERORDER DATESTATUS

ORDER I TEM BACKORDERED

QUANTI TY

I TEM

I TEM NUMBERQUANTI TYDESCRI PTI ON

ORDER I TEM SHI PPED

QUANTI TYSHI P DATE

CRS

Business Users

Compliance

Add More Source Data… and Use It For Multiple Purposes



Mart

Source Data

CUSTOMER


ORDER



QUANTI TY

I TEM



QUANTI TYSHI P DATE

CRS Compl

Fin

Business Users

Compliance Finance Risk

And so on…



Mart

Source Data

Business Users

CUSTOMER


ORDER



QUANTI TY

I TEM



QUANTI TYSHI P DATE

Treasury

Fin

CRSCompl Treas

Compliance Finance Risk

Vision State Simplification, Standardization, Consolidation

Customer Introduction & Life-Cycle Maintenance Process

Sal

esLo

gist

ics

Sal

es R

ep/

DS

D R

epF

inan

ce /

Ove

rall

Dat

a S

tew

ard

Sys

tem

Upload Customers

Update logistics information

Update Customer Profile Information

Credit Approval Reqd?

Resolve Duplicates

yes

Set Status to Charge

Update Billing Informationno Update Hierarchy

Information

Update Trade Channel

Information

Review Alerts

Hierarchy, Channel,

Address info complete?

Duplicate resolution

reqd?yes

no

Put customer state to ACTIVE

Alert respective role

yes

no

General Ledger

Consolidation

Financial Systems HR

HR

PR

Other

Calculation Engines &

Applications

Planning Profitability

RiskALM

OperationalSystems

Member

Card

Operations

Merchant

ReferenceData

Pulse

Call Center

Student Loans

AccountingHub

Accounting Rules

Sub-Ledger

Data Warehouse

Data Management

Next Generation Infrastructure

Reporting & Analytics

Financial Reporting

Management Reporting

Regulatory Reporting

OperationalAnalytics

Tactical Info Delivery

Hierarchy Management Rules ManagementWorkflow Management

SecurityManagement

Data Quality& Governance

Master DataManagement

Metadata Management

AP FAARPurch PA

Capital Alloc.

CashFlow

All required data available from a single source Data is reconciled to GL and transactional systems All Analytic applications source and return enriched data to common DW Key reports and analysis produced from the DW with common portal, hierarchies and delivery

processes End-to-End data lineage and governance ensures quality, transparency and traceability Governance processes to ensure data quality and consistent use

Problem: EDW with 60K daily reports; highly concurrent environment caused missed deadlines due to system uptime & scalability limitations. System also had slow performance and weak data quality.

Solution: Teradata financial data warehouse for core financial reporting on common platform Golden Gate Mover used for real time replication of data.

Benefits: Reporting performance is approximately 2.5X faster than legacy environment; greater system stability with no major outages; implementation of “swim lanes” to protect heavily used applications.

Top 3 Global

Investment Bank

Problem: Difficulty getting a timely, reliable view of financial performance across 20 separate legal entities. Metadata and metric definitions needed to be standardized across the enterprise.

Solution: Teradata financial data warehouse was installed as the sole repository for all financial data reported by the CFO.

Benefits: Key strategic business initiative support for compliance, cost reduction, and acquisitions. Subject areas include asset & liability management, capital allocation, and planning & control.

Large European Diversified

Bank

Problem: Integrating different risk exposures across retail, commercial, capital markets, insurance and wealth management

Solution: Integrated active risk warehouse. Leverage of current Teradata platforms employed for risk management. Leverage of Teradata Financial Services Logical Data Model. Integration with risk management functions

Benefits: Single name risk exposure system resulting in low losses during credit crunch

Top North American

Bank

Problem: Create economic advantage with enterprise stress testing and influence regulatory requirement for stress testing. Issues were: Frequency and latency for complete risk aggregation, Reduction of manual intervention in process, Flexibility of risk aggregation and underlying process

Solution: Active integration with risk application: Rapid ingestion and standardization of data, aggregation of risk data. In warehouse risk calculations to minimize risk engine processing. Integration with risk engines

Benefits: Daily enterprise stress testing. More complex scenarios and more scenarios. No manual intervention in stress testing

Top 5 U.S. Bank

Case Studies

04/18/2023

The Way to Success•Focus on a data centric approach to be successful

• Provides lowest enterprise cost of ownership and greatest flexibility• Treats data as an enterprise asset and not owned by the application• Build in increments based on business drivers

•Technology• Provider should be an ethical recognized leader in the Industry• The platform must be flexible and has strong capabilities to deal with the full spectrum of data (e.x . structured, semi-structured, unstructured)

• Allow for complete query freedom & complexity• Strong workload management• High concurrency• Data model flexibility

•Experience is required• Partner should solely be focused on Enterprise Analytics• Solutions should be used for not only Finance, Risk and Compliance. Leverage for the entire enterprise is a prerequisite (i.e. Marketing, Customer Management)

• Resources should know how to do this and should have done this before• Technologies, methods and tools have to insure firms success• How strong are the data architects? Data strategies proposed and strength of the logical data models?

TURNING DATA INTO AN ADVANTAGE

Sean O’DowdGlobal Director, Capital Markets PHONE: (707) 676-3693EMAIL: [email protected]: www.about.me/seanodowd

@SeanPODowd

- Webinar link- Replay Link needed

- White paper- CFO Whitepaper- Forthcoming Finance, Risk, Compliance and Treasury Convergence Whitepaper

- Teradata Financial Services Solutions- www.teradata.com/industry-expertise/financial-services/

http://www.about.me/seanodowd

FRaCT Webinar Deck

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