By Mark Chillingworth 9th June 2016
The end of a role is often seen as an opportunity to look back and reflect. Ian Alderton has flipped the coin and is looking ahead at the growing number of opportunities financial services CIOs can embrace as attitudes, regulations and technologies open doors.
Alderton, a specialist in Corporate Banking (think of banking that deals with corporate and institutional customers) has recently completed three years modernising the technology of the Bank of Tokyo Mitsubishi (BTMU) in Europe.
“Banks are data services where data is their most precious asset. As such It is no longer enough to think of digital as a veneer to an analogue service – it has to be about changing the value chain,” Alderton says of how he had to energise and simplify the technology operations of BTMU to ensure it was ready to adapt to the changing banking landscape.
“I was given a mandate to change the value proposition across Europe creating a stable technology operation. So now it is nimble and effective and the organisation can tap into the technology capability to support and achieve its business objectives.
“Resilience has significantly improved and increased through the use of Infrastructure-as-a-Service (IaaS) and private cloud. That has improved the value technology delivers to the bank’s customers,” Alderton says at our meeting in Royal Exchange at the heart of the UK’s and Europe’s financial services community.
“There was a massive improvement in the maturity of the technology at BTMU, going from craftsmanship to industrialisation” the CIO says of how BTMU strode up the assessment levels of ITIL, the IT service management best practice guidelines. Alderton brought in a leading independent third party to assess the ITIL levels for BTMU, an industry benchmarking exercise both the CIO and business really value.
Over recent years the financial services community has begun to feel more comfortable with cloud computing, where as this author recalls hosting a cloud computing event for the CIO community four years ago and the summary from attendees ran along the lines over our dead bodies. Alderton laughs when I recall the story and says the acceptance of some, small level of risk in the use of cloud based technology services has been “the most comprehensive” change in the sector in recent years.
“Banks can now tap into that power and address any peaks in demand,” he says, explaining that cloud has won some hearts in banking for the technologies ability to help banks perform data intensive credit risk simulations in order to meet new global Regulatory requirements, such as Basel III, following the financial crisis that began in 2008. In a post 2008 Vickers Report world (set up by the coalition government in the wake of the financial crisis) banks today must now be rigorous in identifying risks and have strong contingency plans in place. Scenarios that place a high demand on the technology capacity of the bank and therefore prove the worth of cloud computing.
“You need an unlimited amount of capability to run these scenarios at the capacities that they demand, so options like the Amazon EC cloud are incredibly powerful,” Alderton says. The highly experienced CIO says investment banks, in his opinion, have been the banking pioneers of cloud usage, but every bank is different. Alderton has been CIO for corporate banking at RBS; CIO for corporate and investment banking at Wachovia Bank, part of Wells Fargo and had leadership positions with Prudential Financial, Rothschilds and Deutsche Bank.
“One of the big challenges is the capital risk models that must be maintained according to regulatory demands. By using an on demand cloud utility, banking CIO are only charged for the computing capacity used, meaning that significant capital costs are moved into much smaller variable operating costs that will mirror true business demand,” he says of how the increasing regulatory demands placed on banks have created a cloud technology innovation demand in the sector.
Cloud computing may be giving Alderton’s peers greater performance and shifting costs from capex to opex, but as CIOs in every sector know, it comes with a different set of demands.
“Where there is a big change in the banking sector CIO world is cyber-security, especially since we have seen a number of high profie cyber intrusions. Recent events have painted a very different picture of the cloud,” Alderton says of how all the recent cyber attacks were on in-house systems and not cloud based services. He says CEOs and transformational CIOs see cybersecurity protection as a much more layered approach, with cloud playing its part.
The CIO has exploited the potential of cloud computing in his recent role. Alderton sees the potential for Blockchain the permission free distributed database that creates a growing list of data records in a continually growing ledger that is hard to alter. “The real value is in cross border payments, a payment process that has been in place for 150 years and is based on the concept of “wire transfers” originally developed by telegraph companies. This opens up and creates transparency. Imagine that you need to wire money overseas to your family. Today this can take several hours or even days to move the money from your account to the destination account” he says. “With Blockchain you can create real-time transactions, with full transparency and tractability at low cost and it begs a question of the need for a central banking transfer organisation. For financial inclusion, Blockchain is a very positive trend.
“There is a perfect storm of business intelligence (BI), big data and new competitive and regulatory environments causing great change in financial services. Banks have options to buy, build or partner in all of these areas. Many have already bought disruptors, some are looking for an internal build and there is a growing number of partnerships. R3 is a good example,” Alderton says of the Blockchain consortium formed in 2015 by 42 major financial services organisations to research and develop Blockchain. R3 members include Barclays, Credit Suisse, Goldman Sachs, JP Morgan, RBS and UBS. Interestingly, Barclays and JP Morgan have considerable technology centres of excellence in the UK.
“A number of banks have already taken out Blockchain patents and the speed of market commoditisation is having a significant impact on CIOs. Customers always want instantaneous provision and the customer’s experience of using technology such as DropBox and iCloud has shaped their expectations of banking technology.”
Sir John Vickers accused the Bank Of England, on the day this article was written, of not putting the full force of his regulatory suggestions into action. Whatever comes of that debate, it is clear talking to Alderton and some of his banking peers that regulatory compliance is a big part of their day job. Alderton describes how BCBS2329, which regulates the principles of data aggregation, means CIOs and their organisations have a responsibility to be accountable for the data they hold and who the data owners are. Alderton has written for CIO UK on how banks are data businesses and he believes these regulations will enshrine that position.
“The same rigour used for a physical asset like gold must now be used with data,”
“The same rigour used for a physical asset like gold must now be used with data,” he says of how important information and the teams that handle it have become in banks. The Dodd Frank Wall reforms in the US, and the Markets in Financial Instruments Directive (MFID) in the UK “are all about data, its regulation, risk, reporting, management and stress testing,” Alderton says of the world banking CIOs are preparing for.
“Banks are now hitting a new level of industrialisation of technology that will move away from analogue processes to a new digital infrastructure that will be optimised around social, mobile, data analytics and cloud as well as a very prescriptive regulatory framework.It is about how they can re-write some of their business models and exploit digital assets based on a new level of technology disruption and innovation.”
This article was first published in CIO Magazine on 9th June 2016