It’s the perennial technology choice: should financial services organisations build or buy their IT infrastructure?
This is no inconsequential decision. In an increasingly digitalised age, where speed of service, automation and efficiency have taken on new levels of importance, institutions’ technology capabilities will determine their ability to service clients, stay compliant and do it profitably.
Bespoke IT build considerations
The big attraction of building proprietary systems is that they are precisely that. Firms can design the platforms for their particular business and operating priorities, giving control and the potential to gain a competitive edge in the way they can service clients.
But there are trade-offs firms commonly face and need to factor in.
- Project scoping
The first lies in taking charge of the full project scope. Projects are invariably more complex and harder to manage than originally anticipated. That introduces a risk that what you are building won’t end up being fit for purpose, especially in a constantly changing global regulatory environment that allows little margin for error.
- Continual adaptation
Which raises another point – will you ever be finished developing the solution? Compliance specifications need to evolve in line with different jurisdictions’ regulatory rules. Client expectations and available technologies are always advancing too. System development is never a one-time, set and forget process. Solutions must be maintained and capabilities enhanced, requiring ongoing commitment, expertise and resources.
- Downstream impacts
And there is a domino effect. Systems usually get tagged to a core platform. When you change that core technology – moving to another customer relationship management solution, for example –you may have to remodel the build that’s just been completed.
- Client due diligence
Client comfort is a further factor. Service provider due diligence processes are getting ever more stringent. Contracts can be won or lost on the strength of an institution’s technology capabilities and operating efficiency. Will an in-house build give clients and prospects the same peace of mind as a proven third-party system?
- Total cost of ownership
Then there’s cost. Will developing, testing and maintaining a proprietary solution be cheaper in the short- and long-term versus paying a vendor system license fee?
(System) buyer beware
Similar assessments come into play when considering a third-party vendor solution.
- Functionality coverage
How fitted will it be to your business needs? Will it be an out-of-the-box system with limited functional adaptability? Or can components be tailored to your requirements?
- Compliance updates
As with an in-house build, a vendor system’s ability to manage regulatory and compliance risk as rules evolve will be critical – by ensuring fields are updated for each new FATCA reporting change or money laundering directive, for instance. Can you comfortably delegate that compliance risk, knowing the vendor is on the case?
- Clear selection criteria
The selection process itself can be expensive and difficult to manage. Do you have clear criteria for what you want? Is what you want what you really need? And are you being sold a product that meets those needs?
Third-party systems can look similar superficially but vary markedly under the hood. Likewise, each solution is trying to stand out from the rest. So be careful you’re not being oversold functionality that falls short of what’s being pitched. Employing a third-party consultant to manage the selection process adds expense but may add value by helping better marry your current and future requirements with the system choice.
That future-proofing issue is important to keep in mind, to ensure the system can keep up with developments to your operating model. What happens if you switch out any upstream or downstream applications? Will the solution scale with you? Can it manage the complexities of business growth/diversification?
- Cost saving potential
The degree of future-proofing will also feed into the total cost of ownership over a system’s lifetime. Buying something that lasts guards against needing to rip it out and start again in a few years. Plus, a system that can drive up your operating model efficiencies – through automation, reduced errors, faster processing times, etc. – can deliver significant cost cuts.
Data sharing is a good example. Static data and documents can often be reused across regulations and jurisdictions, as with firms’ anti-money laundering and FATCA reporting responsibilities. A system able to capitalise on that data to minimise processing duplication – and indeed the need for separate applications – offers time and cost savings.
Sticking it together with system band-aids
Whether financial institutions take a build, buy or hybrid approach, connecting the different systems into a seamless, straight-through processing environment should be the goal.
The reality is that many firms take a band-aid approach to their infrastructures. They may have a fund accounting platform, CRM and investor portal that they tell clients to talk to each other and work seamlessly … when in reality, they create a CSV file that gets uploaded, changed and uploaded again. That is a long way from true, integrated STP. In such cases, the best solution may lie with an independent piece of middleware that is agnostic to the different platforms and can integrate them together.
Ultimately, organisations get judged on how fast and accurately they deliver outputs to clients and regulators. Whatever technology route you choose, make sure your infrastructure fits the bill.
ABOUT DEEP POOL
Deep Pool is the #1 investor servicing and compliance solutions supplier, providing cutting-edge software and consulting services to the world’s leading fund administrators and asset managers. Our flexible solution suite, developed by an experienced team of accountants, business analysts and software engineers, supports offshore and onshore hedge funds, partnerships, private equity vehicles, retail funds and regulated financial firms. Deep Pool is a global organisation with offices in Dublin, Ireland, the United States, the Cayman Islands and Slovakia. For more information, visit: www.deep-pool.com.