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Will Financial Reporting Standards Help Reduce Compliance Costs?

Panelists contend that global financial reporting standards will help banks reduce the tremendous costs of regulatory compliance.

Technology’s role in helping financial institutions meet the increasing regulatory burden was front and center at SWIFT’s Operations Forum 2013 conference, with panelists commenting that cloud, big data and semantic technology will help organizations in the near future.

With most experts estimating that the compliance price tag for the financial services industry will be in the billions of dollars, financial organizations are looking for ways to meet regulatory demands while simultaneously trying to reduce costs.

"Banks will have to report much more frequently and will have to consolidate data," said Javier Perez-Tasso, head of marketing at SWIFT and also moderator of the panel "Can Technology Carry the Regulatory Burden? "With data spread across many different areas, we will see if a lack of systems integration will be overcome" as firms find ways to meet regulatory demands. "Big data, cloud computing and semantic search will help financial institutions to comply with new regulations."

But just thinking about regulation as a burden places it in a negative light. "We should not be thinking about this challenge as a regulatory burden," said Lee Fulmer, Managing Director, CTO Cash Management at J.P. Morgan and a member of the panel. "We should think about it as good business."

[For more on semantic search, read: Semantic Search Takes Thomson Reuters Eikon to New Levels.]

However, building new platforms and finding new -- and expensive -- ways to integrate data is not the answer, Fulmer warned. "We need to create a set of standards for a way to do regulatory reporting across the business" and across regulatory boundaries, he added. "If we could leverage SWIFT to help create that standard, that would be extremely helpful. Rather than continuing to spend money with migrating to new platforms, or investing in new technology, let’s find a way to standardize reporting."

Other panelists agreed that a reporting standard would be very helpful for global banks. "There is a risk that we will see different jurisdictions adopt different standards for data," said David Saul, Senior Vice President and Chief Scientist, State Street. "Every regulator wants something different, but if we can start with the LEI [Legel Entity Identifier] and take it to a more global level, that would be a good start. But if every regulator goes their own way, that could be very dangerous."

On the topic of standards, an audience member asked the panel why attendees at the many SWIFT standards forums rarely seem interested in developing a standard for financial reporting. The panelists responded that the target audience wasn’t the right fit for the topic. "If you brought a bunch of regulatory and compliance people together, they would stress that regulatory standards are very important," said Fulmer. "But the people that attend the SWIFT standards forum are focused on payments standards."

Despite a lack of financial reporting standards, technology can help banks move closer to regulatory compliance, while keeping costs as low as possible. "Technology cannot carry the burden of regulatory compliance alone, but we have made a lot of progress on the cost angle," said Ulrich Homann, Chief Architect, Worldwide Enterprise Services at Microsoft. "There were a lot of costs associated with regulation." Homann mentioned that cloud computing options are improving and other technologies, such as machine learning and semantic technologies, will certainly help with compliance.

"In the regulatory space, though, while technology is not the whole solution, it has to be part of the solution," added State Street’s Saul. "We are not going to be able to solve the problem of regulatory complexity and diversity without technology and standards."

Saul noted that semantic technology, which has a strong technological foundation, is advancing rapidly. "Semantics are based on the same technology that the internet uses," he said. Enterprises that use semantics on data are basically doing the same thing that internet search providers do when a user enters a search query. "Applying it to data in the enterprise allows you to apply linkages across data areas."

The advantage of using semantic technology on corporate data is that it can be used for more than compliance. "Once you have done semantic mapping, you can do business queries against the data," Saul added. "So it’s not just for compliance. Now you could possibly generate revenue from the same set of data."

Generating revenue from a project that was previously categorized simply as a "cost of doing business," is certainly something that most bank executives would welcome. Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

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