ANALYSIS: ARCHITECTURES October 2011

Dynamic Tension Tom Groenfeldt Migration to a new platform gave HSBC a chance to break down some silos without losing data “Dynamic tension” is how Sharon business side wants fast implementation faced an estate of data silos. I am Allsop-Kenney describes her working of solutions while IT serves as the guardian nowhere near getting rid of all those, but environment as head of the Business of a very structured environment which we have a program of projects in place to Intelligence Competency Centre at has to be protected. Silos and disparate break down the silos and move data into HSBC in London. Users want fast platforms are often the result of business the core repository. We do it when there solutions, IT wants to protect the groups implementing a solution with no is a clear cost benefit.” She takes budget information environment, and architects regard to the bank’s broader architecture wherever she can find it, including from think very long term about how it all and information requirements. security because a data loss would be should work together. Meanwhile catastrophic. banks’ profits are under pressure. The BICC has developed a data Speaking at the Teradata Partners lab where business users can see if Conference in San Diego, California moving their data into Teradata brings early this month, she said that the benefits they anticipated. They banking faces increasing demands “We had a complicated have approximately 90 days to work from regulators, both locally and legacy of silos with business with the data in the data warehouse globally. In the UK, she added, it also and link it to other data to look for faces an often hostile media. users providing their own data business value. They still have to pay “Banking is unpopular. We need in data marts, data in handbags the cost of moving into production, to be very, very responsive to the but the lab at least gives them the needs to serve our customers well, and data under their desks.” opportunity to develop a business and intelligence has a huge part case for the warehouse approach. to play in helping the organization The bank needs all of its customer meeting those demands and build information to manage risk, liquidity out from what has been one of the and cost of capital cost for profitability. worst economic situations we have been Allsop-Kenney said the BICC has a “In making risk decisions we are very through.” team that works closely with the business conscious of the customer we want to At HSBC, pressures on margins mean to understand its needs and guide the serve. Our aim is for a greater share the organisation is under pressure to do business users toward an effective of the customer wallet and a better more with less, she added – but not too solution which maintains data quality. understanding of the customer for the much less. When the goals are defined, project development of a long-term profitable In 2007 the UK retail and commercial managers from BICC take over the relationship.” divisions of the bank nearly ran out of development and implementation. Business intelligence has to be fleet computing power. The bank’s technology “That’s a great benefit because it gives and effective and capable of supporting wasn’t keeping pace, it had a messy me the opportunity to influence the project new marketing campaigns. When the situation with split environments and outcomes and keep them consistent with BICC asked business areas what they different systems struggling to keep pace the strategy. The legacy was for business didn’t like the common response centred with customer demands. In 2009 the bank leaders to drive the project managers for around speed of access. did a lift and shift to Teradata. the fastest solution.” That often was to “For the first time we invited all the “The great news is the migration gave create a silo which was very effective for parties into the room at the same time – me a performant, stable and scalable the immediate business goal but walled Teradata, SAS, IT and the business users environment. It was a hugely successful off the data which could provide a broader and we brainstormed over what we could migration.” But if she had to do it again, view of the customer. do about the problem.” In-database she would prefer to clean up the complex “We had a complicated legacy of silos processing was the solution they agreed and messy legacy data structures rather with business users providing their own on. Allsop-Kenney said implementing it than just move them – “Although I don’t data in data marts, data in handbags and has been difficult because so many parties know that we had the time to make a data under their desks. They have been were involved, but in terms of technology different decision,” she said. doing that because we in the intelligence it has been groundbreaking and has One job of the BICC is to keep data organisation have not been able to provide led to a more streamlined approach. anarchy at bay. The BICC aims to create them with the solutions they need. This SAS and Teradata were moving into live as close to a single version of the truth in package of projects was put in place to deployment while she was in San Diego as close to real-time as possible, although provision that demand.” with the first set of models going through she admitted that a single repository isn’t She described the IT legacy at HSBC the process. The bank uploads the data going to hold all the bank’s data anytime as a federated community of banks automatically; the data set is created in soon. But when the bank does have that bought their own systems. One the database. multiple repositories, it wants to keep the department might have liked blue, another “There is no handover, so it runs faster data consistent across them. preferred pink, but no one considered and you have taken out points of failure A constant source of dynamic tension is how they would integrate. because you don’t have to move your the different desires of business and IT. The “When we implemented BICC we data around the organisation.” BT

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ANALYSIS: Vox PoP October 2011

Stopping the rogues

The nefarious rogue trading activities of Kweku Adoboli have cost UBS $2.3 billion so far and brought to mind the actions of previous rogues such as Jérôme Kerviel at Société Générale and Nick Leeson at Barings. How to prevent repeat occurrences was much discussed at Sibos 2011 and subsequently, findsNeil Ainger.

Just why did the internal access control Jennifer Hanes, executive vice- said UBS was probably using in-house and monitoring systems at UBS fail to spot president, reconciliations, SunGard systems at the time of Adoboli’s rogue Kweku Adoboli’s rogue trading activities? Ambit corporate banking, said the trades. If they did spot them why were they rogue trading at UBS represented “a Davis’ advice to risk managers? Test ignored? Who was looking at the cash failure of both systems and procedures”. the systems and make sure they don’t position, if anyone? And is it wise to allow For UBS, or indeed any organisation, the have holes. “Start with trade capture. people to move from the back and middle fundamental challenge in guarding against When the trade comes in, make sure office to front of house trading positions? fraud is to ask yourself what patterns are it is recorded. Make sure you have a Banking Technology gathered a number of occurring in the market right now and to confirmation from the counterparty, run responses from risk system vendors and be constantly on the lookout for anything the trade through the life cycle and check others at the Sibos 2011 show in Toronto, out of the ordinary. “Trending and analysis and vet the processes.” Canada, and subsequently, asking what software can help deliver the policy and One of the problems, especially for lessons can be learnt for the future and assist managers in maintaining effective the larger financial institutions, is that investigating if better technology and oversight,” she said. they have so many disparate systems, Human Resources procedures might “Nothing is ever static, so constant and those systems don’t necessarily be the answer to stopping rogue trading vigilance and flexible people and software communicate with each other. System A in its tracks … are essential. In my opinion the risk of sends 1,000 trades to system B, but does Phil Cantor, senior product manager, fraud is so significant – both monetarily system B receive all of them? SmartStream Technologies, said the and in terms of reputational damage – Banks should focus on operational UBS incident was “a failure of learning”. that it is worth making the investment in controls, said Grace O’Donnell, deputy The incident mirrored that at Société effective solutions and staff.” chief executive at Information Mosaic. Générale, when Jérôme Kerviel lost €4.9 John Groetch, business development “You need wide, end-to-end control billion in 2008 by exactly the same means manager at Calypso disagreed, saying systems, which is why we offer dual – namely, booking fake hedging positions that the UBS case was neither a failure or even triple verification solutions for into the bank system to hide his losses. of systems or procedure. “It is a policy transactions. Nothing moves until it He did it on a Delta One trading desk too, issue. Almost all rogue trading occurs is signed off; that needs to be part of which typically buys a collection of shares when people from the back or middle a trading system [though of course it that track an index or a commodity, metals office move into the front office. If cannot lead to undue delays].” for example, and then covers its exposure banks implemented a policy prohibiting Mandates limiting the amount that can by hedging. The tiny differences in price this move, we could have avoided the be traded overall or in any one particular (the delta) can lead to big profits in high situations at SocGen, Barings, NatWest, stock, currency or geography may also be volume synthetic trading but equally big Sumitomo and UBS. This situation able to help. “Our systems can categorise loses are certain if the derivative hedging doesn’t require more regulation, just a the types of risk facing firms and present is either defective or false, as in this case. change in HR policy.” the information in dashboards or Both traders were, coincidentally, 31 years Multiple layers of technology checks automated alerts, which can be sent to old at the time of their apprehension, and balances need to be overlaid with a mobile devices if a problem is detected.” although UBS’ Adoboli was dealing in strong information security and access/ But O’Donnell warns: “It can be tough more recent Exchange Traded Fund control policy to prevent cases like this, to find fraud.” Her company’s system can instruments, particularly covering foreign said Erik Stein, a vice-president and look at exposure to a particular client, exchange movements (see news page 4 product manager for financial crime however, and that may have revealed for more). risk management solutions, at Fiserv. problems like those at UBS, she added. To prevent rogue trading, as much as A peer group analysis can also contribute David Gibson, director of technical that is ever possible with human beings, towards strong oversight so that marketing and strategic accounts at you need a bank-wide view, believes anomalies can be spotted more quickly, the data governance specialist Varonis, Cantor. “Somewhere in UBS’ systems leading to faster investigation. says the UBS rogue trader fiasco appears were some trades that didn’t add up, but Chris Davis, co-founder of Two to be a classic case of an employee the problem is finding them, raising a red Four, said he was shocked: “You’d think exceeding his authority. “The bad news is flag and then acting upon it. To do this, the systems would have checks and that many such breaches of authorisation and ensure good crisis management, you balances built in, and if not, that’s all the are never even recorded or publicised.” must have real-time data at your fingertips more reason to buy a system which has This case is interesting because and Profit & Loss information that gives been vetted by other people.” Spoken of the lessons it can teach us about you a true balance sheet.” Flexibility is like a vendor of course, but he does have security authorisation and the need for key as well because financial institutions a point and was speaking before UBS automated alerts, he added. “You should have to be able to respond to new and admitted it did get a warning signal that have employee software that looks for developing challenges. was ignored. Like other risk experts, he any unusual or unauthorised patterns

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Photos and additional reporting: Tom Groenfeldt

and new legislation may emerge. Perhaps there might be an EU-wide regulation on rogue trading [if the industry doesn’t put its house in order],” he warns. Adoboli was likely to have been acutely aware of UBS’ internal processes according to Jane Peters, head of operations at Avertis Risk Solutions. “Anyone motivated either for personal gain or to cover up their Avertis Jane Chris Davis Dave Excell Eric Stein own mistakes, who had followed his career path of moving from the back office processing department onto the trading floor, would have the necessary knowledge to circumnavigate the safeguards and controls put in place if they are not robust enough at the outset. Risk controls need to be proactively tested and reviewed on a regular basis - including alert responses - to prevent procedures becoming too well known Grace ODonnell Frédéric Boulier Phil Cantor David Gibson and too easily avoided.” “From Nick Leeson’s acts at Barings of behaviour when it comes to handling helpful and Excell thinks it is feasible. “A Bank through to those of John Rusnak organisational data or breaching the profile of an individual can typically be at Allfirst Financial and Jérôme Kerviel grounds of normal trading behaviour.” established after 10 transactions. From at Société Générale, whatever the A nebulous concept of course, as this point on the accuracy and certainty motivations of rogue traders the problem traders often pursue their own esoteric of the modelling software improves and has been made possible thanks to strategies. At least with automated algo transactions that do not match past inadequate systems that allowed them trading systems breaches of the pre- behaviours can be identified [and a red to book false trades and conceal their programmed actions will be highlighted, flag raised].” activities; the culture within financial which isn’t to say that the original Historical data has to be used to build institutions should encourage stricter parameters programmed in at the the initial modelling software, however, controls and oversight. beginning are sound either or that anyone and it can take time for the solution to “Companies should ask themselves, will take notice. Trading is inherently a mirror current trading behaviour during would their staff be inclined to defer to risky business. the early stages of an installation. Having a manager if they were asked to book an That is certainly something that said that, there are few other industries unusual trade or overwrite a valuation? Dave Excell, chief executive at that can predict behaviour as well as Are their employees actively encouraged Featurespace, which provides the gambling sector so some valuable to report errors?” This might at least behaviour profile software and has a lessons could be on offer here in the lessen the threat from genuine mistakes long history in the gambling industry, fight against rogue traders like UBS’ or so-called ‘fat finger’ incidents, if not understands. “Bets on a sporting event Kweku Adoboli. “The banking industry from rogue trading itself. This kind of are comparable to trades placed on could also use some regulations in this openness does, however, go against a financial market,” he says. “Traders area or a centralised anomaly reporting the macho culture of traders so this is are taking risks on a minute-by-minute system,” adds Excell. perhaps wishful thinking. basis, just like the professional poker Frédéric Boulier, head of anti- “In our view group operational players that we track. Our software can money laundering and compliance at divisions need to have a much greater pick up on anomalies, even if the trader Nice Actimize, and an ex-HSBC banker influence at board level in order to is trying to mask his or her activities by himself, backed this viewpoint pointing encourage cultural change,” adds using multiple pseudonyms.” out that rogue traders are never charged Peters. “Investment banks will continue The vendor’s technology can be used with rogue trading as such. Prosecutions to suffer the indignity of these headlines on an individual account level to highlight relating to false accounting and fraud unless they focus on better governance.” problems such as when an employee are much more likely to occur, as has The departure of Oswald Gruebel, the is stuck in a ‘chase’ scenario trying to happened with UBS’ Adoboli who was chief executive of UBS, who resigned recover losses or it can identify when charged with these two offences on on 24 September after the full extent of new aliases have been created or taken 22 September at the City of London Adoboli’s nefarious activities became over to hide positions. If such systems Magistrates Court. “Rogue trading is left clear, could perhaps still be in his job can be transposed into the investment to the courts at the moment but in future now if some of the suggestions above banking arena it could obviously be it could become a major regulatory area had been acted upon earlier. BT

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ANALYSIS: Innovation October 2011

Straight to the point Sherree DeCovny The unique format of the Finovate events gives a concise view of where technology is heading. If you have never been to Finovate identity. No core integration is necessary. the payment, the small business owner in London or New York, you should There are no upfront or annual fees – Grip viewed a graphic display of her accounts go. Produced by Online Financial costs $0.99 a month per active user – nor to ensure she would have sufficient Innovations, vendors have just seven is there a minimum user agreement. funds to make the payment. Then she minutes to demonstrate their product. At Angus Davis, chief executive of transferred funds between her accounts. the end of the allotted period, the gong Swipely, explained how his company The product will initially be available sounds and the microphone is turned helps local merchants understand and on iPad and Android, but it is designed off. Presentations are short, sweet and to engage their customers, and grow to scale across other ablet platforms. the point. After two days, the audience their revenue through paid loyalty Mitek Systems’s Drew Hyatt, senior comes away with a good understanding programmes. Consumers earn points at vice president, sales and business of the new technologies hitting the particular merchants, and the rewards are development, and Diane Morgan, director market, and they even get to vote for automatically loaded onto their credit or demonstrated Mobile Photo Bill Pay. This their favourite products. debit card for use at their next visit to the application allows consumers to save More than 60 companies merchant’s establishment. Consumers money by transferring their balances demonstrated their technologies at New can access a network of local merchants on credit cards, and it allows banks to York’s FinovateFall last month. Their where they can earn rewards. They can acquire new customers when they are products fell into several categories check the loyalty points they have earned actively shopping for a new credit card. including money management, security, at specific merchants and earn rewards “The bank benefits from a much lower social investing, online and mobile faster when they tell their friends about cost per contact, which also gets higher payments, and online and small business a particular merchant on Facebook. response and conversion rates, lowering banking. Merchants can estimate the lifetime the cost of acquisition by up to 25%,” Among the Best of Show awards was revenue that people will drive and year- said Morgan. eToro for its Copy.Me application, an to-year customer retention. They also The product was demonstrated on an individual and personalised one-stop can understand what their customers are Android, but it also can be deployed on e-store. The application allows expert spending in their local community. an iPhone or a Blackberry device. traders, known as gurus, to generate a Swipely launched a service in An existing customer selects second line of income by creating their Rhode Island last March, and now it is “Transfer Credit Card Balance” from own investment business and showcasing expanding into Boston, San Francisco menu of options, logs in with secure their investment skills. Expert traders can and New York. authentication, and peruses the credit create their own investment shop and “Since launching the service in March card offer. The customer is prompted start promoting their financial services of this year, we’re already seeing some to take a picture of the coupon. Mitek to potential investors worldwide through great traction,” said Davis. “We have technology captures the 3-D image, the eToro social trading network. Copy. over 500 merchant locations running converts it to a 2-D computer readable file Me is integrated with eToro’s OpenBook, their loyalty program on Swipely today.” and parses the information into the credit which exposes gurus’ trading skills to Jeff Chen, vice president, business card issuer. A current APR and current over 1.75 million registered eToro users. development, at mShift, and Ileen Pinhasi, account balance capture is made, and T8 Webware chief executive Wade product manager at ACI Worldwide, the necessary data fields are dynamically Arnold and product manager Ben demonstrated Enterprise Banker for tracked to present a competitive offer. Metz demonstrated Grip, a financial tablet devices. Through role-play, they In real time, the credit card issuer aggregation application that banks and showed how a small business owner on can use credit scoring methodologies credit unions of any size can use to offer the road could use the device to approve and algorithms or existing pre-screening mobile banking. Grip streams balance a payment to a vendor in China. tools to present a balance transfer offer and transaction data from multiple “Push notifications allow me to be to the customer. The offer is presented. financial institutions, displays account aware of my company’s banking activities The customer accepts the offer with information and sends alerts so users that require my attention even when I’m all the details outlined of their savings have a holistic view of their finances. doing something else,” said Pinhasi. and transfers. They view the terms and For example, a consumer can get “Enterprise Banker is integrated across conditions, accept them, and the transfer information about a specific transaction all points of access. So whether it’s is made. they did at one Starbucks location or all tablet, desktop or mobile, the user only “It’s just that simple. Point, shoot, their transactions across all Starbucks has to manage one set of credentials for transfer and save. Secure, convenient, locations. all different points of access.” fast and all down to my smartphone,” Financial institutions can access an In the demo, the small business owner said Morgan. analytics dashboard to see aggregate logged in and was taken directly to the Finovate’s format is truly refreshing level information about the usage of Grip. wireless page. The payment waiting to and fun. The audience is exposed to This includes frequency of use, unique be released was shown on the top of the some pretty cool applications – the users over time, signature debit usage screen, and the full functionality available above is just a small sample – and it is a trends and heat maps of ATM locations. online was shown in a menu on the left great opportunity to network with banks They can brand Grip with their own side of the screen. Prior to releasing and vendors. Thumbs up. BT

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