IAN ALDERTON – TECHNOLOGY TRENDS AND INNOVATION

By Mark Chillingworth 9^th June 2016

Ian Alderton CIO. Picture by Harry Chambers

 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.

Comfy clouds

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.”

Regulation banking

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

Bank of Tokyo-Mitsubishi has a set of values based on trust made in Japan is an exciting opportunity for technology leadership

By Mark Chillingworth July 28, 2014 CIO UK

Major business or national infrastructure projects require significant investment. Since the autumn of 2012, the Japanese banking sector has emerged as a key project finance partner, replacing European banks that are still struggling to recover from the credit crisis which severely damaged the world economy in 2008.

The Financial Times reported recently how engineering firm Hitachi, also from Japan, had won the bid to modernise the UK’s intercity rail network. Hitachi is the lead partner in a consortium that needed a loan of £2.2 billion for “upfront investments”, the financial news service reported. Of the nine banks lending to the Hitachi-led Agility Trains consortium, six were Japanese, including the Bank of Tokyo-Mitsubishi.

“That funding is part of a conspicuous trend of Japanese lenders returning to the offensive across the world, taking advantage of the weakness of US and European rivals constrained by the financial crisis and tightening regulation,” reported the Financial Times in October 2012.

Bank of Tokyo-Mitsubishi (BTMU) has been growing in the last two years and has increased its head count outside of Japan as it seeks to expand its global markets business.

BTMU is the largest bank in Japan by assets and expects half of its growth to come from the Asia Pacific region.

In Europe, BTMU has been growing, too. In November 2013, it became the first Japanese bank to open an operation in Turkey. London is the EMEA region headquarters and, as part of the growth, CIO Ian Alderton joined the bank 12 months ago. He told CIO UK about the cultural differences at BTMU and his business technology plans.

“The history of the bank goes back to the 17th century and today we’re an organisation of 37,000 global employees,” Alderton explains. “We’ve been in the UK since 1952 as the primary Japanese bank here and in Europe.”

Referring to the 2013 Turkish bank opening, Alderton says: “It’s our most significant investment and a big role for our technology team. BTMU is the first holly owned Japanese bank in Turkey – it’s part of our growth strategy to be at a central point between Asia and Europe.

“The regulators in Turkey are more proactive than in other markets, especially around technology and we have to host all our systems for the Turkish bank in Turkey. So it was a bank that was built all the way from the ground up,” he explains.

Alderton is an experienced banking-technology leader, having had senior positions within RBS and Wachovia Bank, where he worked with former Barclays CIO Anthony Watson, and his career has included leadership positions with Prudential Financial, NM Rothschild and Sons and Deutsche Bank. Moving to BTMU, the CIO has been struck by, and clearly enjoys, the cultural differences to doing business and operating a business at the Japanese financial services provider.

“For me, what’s refreshing is the trust that really shines through, down to how we operate with our customers, both internally and externally. It’s been an exciting journey over the last year since joining the bank, especially learning about how we conduct business.

“In most western organisations, the most important person in a major meeting sits at the top of the table. In Japanese culture the protocol is different. During meetings, guest have their backs against the wall and the most junior person sits near the meeting-room door. This goes back all the way to the days of the Samurai, who believed the most junior person is the most expendable and it ensures the guests have enough time to draw their swords!”

So far, Alderton’s first year at BTMU has been about ‘providing a clear vision’.

“I’m looking at the future potential of the technology organisation based on its trust and respect. We’re looking at how the technology is used and can be delivered more efficiently to enable the business to become truly global,” he says.

The CIO has a seven-strong management team who reports to him made up of Japanese and European staff.

“The team is trained with a deep understanding of the organisation, so we can focus on how we deliver,” Alderton explains. “It will be about how we develop the story and improve the collaboration and communications internally.”

As you’d expect, Tokyo is the major hub for the bank’s operations, including IT, with London – as well as being a hub for EMEA operations.

“I have a solid reporting line to the global technology organisation in Tokyo and have weekly scheduled meetings with the EMEA CEO,” Alderton says.

Technology strategy renewal

Financial services CIOs face a user base that demands the latest technologies as a result of their consumer experience and from what they see being used in other less highly regulated sectors. But the regulations are important and place a degree of restriction on the adoption of new technology in the sector.

“We’re looking at virtualisation, infrastructure-as-a-service, software-as-a-service and desktop virtualisation as well as the private cloud. The opportunity is there, it’s about understanding the risks, so we may well reach a hybrid solution.

“I really want faster provisioning as well as increased resilience and believe that virtualisation will increase the uptime of our services,” Alderton explains.

“We’re also going through application rationalisation and reducing the size of our data centre footprint. Staff at BTMU understand the importance of data, so bringing their own devices is currently not supported or demanded.”

Alderton is an advocate of the important role that data and information needs to play in modern banking.

Viewing banks as being ‘in the money business’ is old-fashioned thinking.

“Financial organisations are understandably thought of as being in ‘the money business’ – but in reality, they’re actually in ‘the data business’.

“Banks are only now coming to the realisation that data is their biggest asset in the new digital economy.”

In our interview at BTMU’s UK headquarters, Alderton explains that his bank knows their customers very well, but across the banking sector, customer knowledge is an untapped opportunity.

“For BTMU, it’s all about – can we offer the customer ideas before they realise they need what we’re proposing? Business intelligence and information management are the engines to communicate and collaborate with the customer more effectively,” he says.

As the Financial Times analysis shows, Japanese banks “appear robust” – as they avoided the mistake of investing in securities which has caused so much damage to western banks – and have succeeded in building strong balance sheets. BTMU and others are lending to real tangible assets such as Hitachi’s UK rail infrastructure development deal.

Reuters report that outstanding bank loan levels in Japan have fallen by 13.9 percent – a figure that most banks in Europe or the US probably envy.

With his focus on the opportunities offered by information and a very clear enthusiasm for the thriving culture of BTMU, Alderton is ideally placed to be on a fascinating journey as BTMU and Japanese banks begin to emerge as key players in global project finance.

This article was first published in CIO Magazine on 28th July 2014.