Holding the Spending Line

Finding ways to control compliance costs has become a high priority for Wall Street CIOs as they realize that more IT dollars diverted toward compliance means fewer IT dollars devoted to clients' needs and company growth.

Why It's Important: Some CIOs report that up to 20 percent of their IT dollars currently are spent on compliance -- and that's just the money side of the equation. According to a recent global survey by IBM Business Consulting of more than 200 financial services firms, sales and operations personnel who are not formally in compliance roles also spend 20 percent to 30 percent of their time on compliance-related functions. Firms that want to gain a competitive edge must minimize the money and manpower dedicated to compliance.

Where the Industry Is Now: Whether it's unifying job functions or unifying technologies, there has been an industrywide shift toward holistic compliance. Firms realize that having big budgets in multiple buckets creates redundancies, and an effort is under way to consolidate disparate divisions. From a management reporting perspective, this means pulling information together across multiple areas, such as credit risk, market risk and operational risk. Consolidating data warehouses and establishing compliance dashboards are other ways firms are attempting to leverage their present investments for compliance as they integrate disparate parts of their organizations.

Focus in 2006: In recent years there's been a consistent focus on responding to regulatory demand. While those pressures remain, growth agendas are again rising to the top of firms' to-do lists. There's an increased interest in boosting revenue, which is motivating firms to concentrate on speed of product to market and to view compliance as a competitive advantage, utilizing the information they obtain through compliance-related processes to better serve their clients.

Industry Leaders: Some firms have been finding innovative ways to meet compliance demands. Deutsche Bank began leveraging data captured for USA Patriot Act requirements to meet other rules, such as NYSE Rule 431 (the margining rule) and SOX 404 (substantiation of integrity) as early as 2003 through the implementation of dbClient, a data capture vehicle that was deployed across the bank's six key sales and trading operations. In 2005, Bank of New York made efforts to utilize existing processes and financial reporting tools used for SOX reporting requirements to meet the demands of Basel II. (Both Basel Pillar 3 and SOX 409 require the timely disclosure of material changes in operations and financial condition.) New York-based Daiwa Securities America recently established a compliance dashboard and attendant workflow development project using a JBoss application system. And JPMorgan, the investment banking arm of JPMorgan Chase, currently uses its control programs, coupled with the metrics produced by them, to obtain an end-to-end view of risk across the IT environment.

Technology Providers: Compliance covers everything from e-mail archiving and record retention to broker surveillance and anti-money laundering (AML), and many vendors are eager to get a piece of this constantly growing market. On the supervision side, one of the fastest moving vendors is Orchestria. The software provider's current clients include Goldman Sachs and Bear Stearns, and it recently teamed up with records management provider Iron Mountain to provide a comprehensive solution for managing electronic communications. Some noteworthy storage vendors include EMC Corp., Sun Microsystems and NetworkAppliance. And a sampling of AML and broker surveillance providers includes Mantas, Searchspace and SAS Institute.

The Price Tag: Hopefully, $0. The goal is to not add expenses, but to work with what you have. <<<