Risk Finance Convergence - What banks must do?

Regulations are changing the way banks function. For example, the ICB report in the UK recommends that a bank's investment banking business be ring-fenced from retail and other businesses. The Dodd-Frank Act recommends standardization of OTC products and trading via central exchange counterparties. Post the fi¬nancial crisis, regulators have also pointed out that data received by various regulators from a bank do not reconcile. The Basel III requirement for stress testing, economic capital and liquidity risk management will mandate further integration of data across functions.

Needless to say, banks are seeking integration across functions to draw synergies in their control, analysis, planning and reporting. Hence, banks will have to focus on three aspects: standardization, rationalization and transparency.

Standardization: Across functions, the need for standardization is evident and the drivers are both external and internal. In the finance function, the IFRS has replaced IAS 39 by IFRS 9 which covers the requirements for financial assets and liabilities, impairment and hedge accounting. IFRS 9 highlights the focus of the International Accounting Standards Board (IASB) on standards aimed at financial stability. In the risk function, regulators have introduced stricter regulatory capital requirements, leverage ratios, two new liquidity ratios and modified rules for counterparty risk. To handle the changes, banks will require internal data standardization of reference, product, accounting and risk data.

Rationalization: In their heyday, banks created a myriad of products, expanded operations across geographies, created several legal entities, internal LOBs and operating units. IT systems supporting business were often designed to meet the requirements in silos. Rationalization will aim to retire the silo systems by implementing centralized solutions. At the very least, it will ensure that the solution across silos is standardized. The idea is that if all the reports are generated from the same source, the chances of reconciliation differences are reduced. Additionally, difference resolution is easier.

Transparency: The quality, reliability of data and the maturity of governance to manage and remediate data quality will determine the degree of transparency in the banks' financial and risk reporting. Transparency will be driven by consolidation and standardization of the infrastructure with the aim to source, transform, analyze and report data.

Banks must work towards ensuring that the LOBs and functional domains leverage the capabilities of a centralized operating environment and technology infrastructure to reduce the cost of managing the regulatory and compliance reporting overhead arising from changing regulations.

About Author

Soumitro Ghosh is the Chief Executive for Wipro Infotech.

Soumitro took over as the head of Wipro Infotech (WI) in 2013. WI offers a comprehensive suite of solutions and services to customers in India & Middle East and is a strategic division of Wipro?s IT Business.

In his previous role Soumitro Ghosh was the Senior Vice President and Global Head of the Financial Services business unit at Wipro. He had been leading this unit since 2008 and had grown it into a 1.6B$ business. He was one of the founding members of this unit in 2000..

Over the last decade he has successfully built three verticals as a part of this business unit covering the global markets of Insurance, Retail Banking and Securities & Capital Markets. Under his leadership the unit has won over 75 customers globally and transformed five of them into 100M$ plus relationships. These marquee accounts also count among Wipro's top 10 clients. The rich portfolio of customers includes the Top 10 in their respective industry segments. He has also invested in building a strong team of over 1000 industry consultants who provide industry advisory & domain consulting services and build business centric solutions. He strongly believes that innovation that is relevant to business will always have demand be it downturn or times of growth.

In over 25 years of his stint with Wipro he has played several key roles including Global Head of Marketing, Global Head of the Ecommerce Division and Head of the Sun Microsystems Products business in the Indian domestic market. Prior to Wipro he worked for three years each in Hewlett Packard and Guest Keen Williams.

He has also been instrumental in three acquisitions in Wipro and successfully integrated and grown them. He believes in building strong teams that stay together and share the same sense of passion and vision. He is one of the key leaders who have mentored many leaders at Wipro with his people centric leadership style.

He is passionate about sports specially cricket and likes reading in his spare time. He has been a thought leader in the industry and is a much sought after speaker in industry forums.

He is Bachelor of Engineering (Mechanical) and an MBA from Birla Institute of Technology (BITS), Pilani and graduated in 1982.

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