The financial world is under scrutiny from national and international authorities looking into the capital and risk profile of banks and financial institutions. Compliance with regulations has many consequences for the everyday business of financial service providers. It even affects the IT infrastructure of financial institutions. What does Basel III, Mifid II and PCI DDS regulation mean for the connectivity of banks and insurance companies?
To mention just a few: risk management legislation, particularly Basel III, leads to infrastructure requirements that address the need for additional capacity around data storage and datacenter synchronization. Due to Basel III, risk management systems will need an increased amount of data to calculate the risk. This data moves around between datacenters at increasingly high bandwidth and efficient latencies. To give market-related monitoring tools the capability to provide early warning indicators based on high-frequency market data, these tools themselves need slow latency connections with the automated trading systems they are monitoring.
Due to MIFID II legislation the requirement for transparency and pre-trade risk management will drive more complex and efficient networks that will enable systems to deliver the requirements set out within the new legislation.
Technology & risk measurement
Financial organizations are continuously investing in IT systems that gather information about their exposure to risk and that are able to calculate the measures required by the Basel accord. Optimizing their data communications network needs to be included in their IT Strategy. Technology & risk measurement are joined at the hip and cannot be addressed separately.
The requirement for more explicit liquidity stress testing and reporting will require data integration – the collection of data — and exchange across multiple systems, product lines and business units. New regulations are going to test business integration capabilities to one extent or another, since all of them require a new means of sharing, extracting, and processing data.
And more: the data communications infrastructure itself is also the object of compliance. This means that enhanced reporting & monitoring of the network will be requested, not only from an operational optimization point of view, but also to be able to demonstrate that one is in control. Regulators are expecting banks and institutions to develop enterprise-wide infrastructure that directly supports their strategic decision-making and prudent risk management.
Connectivity is Business Critical
One of the big challenges in a global economy is that the financial sector now functions in a sort of financial cloud, where “we’re all in this together.” The upside is that this gives more power and liquidity to investing. The downside is that when one component of the mega-system fails, it threatens to bring down the entire system. IT enhancements of core systems and infrastructure will be crucial. The networks are all vital to the continuity of the mega-system.
From a plain business continuity perspective, Cyber Security policies place demanding requirements in the banking arena. Banks need to efficiently connect users, clients and systems in a highly efficient, seamless and secure manner. At the same time they must deal with requirements driven by the ongoing legislation from the EU about Data Protection. Banks must both support connectivity and at the same time ensure that the data is safely sent and delivered. The PCI DSS standard contains quite a few requirements in the field of information security in relation to (wireless) communications.
In short: the financial world is moving into a world of real-time reporting & monitoring, where low latency, high bandwidth and availability are becoming crucial across the entire enterprise.
In search of excellence
Besides compliance data communications in the financial arena have more drivers. No bank can do without an excellent infrastructure for digital communication for its business processes to rum smoothly. Excellence has many dimensions, such as bandwidth, transmission speed, the quality and availability of the connections, and price.
Financial institutions have the most diverse demands and needs in terms of digital communications. Traders in stocks and derivatives can’t do without fast connections to the trading platforms. The connections between the bank branches on the other hand need to be especially safe and cost-effective. Yet another scenario is the connections between the primary applications of the datacenters that have to be especially robust. And then the internet applications of the bank need huge bandwidth. Each application demands its own approach to the necessary connectivity.
The clue is for banks to set up a flexible strategy for their data communications. Technological developments are occurring so fast that the solution that today is state-of-the-art can be outdated next week. This is particularly true for areas such as latency, where speed records are being broken in quick succession.
Availability and bandwidth are other dimensions that effect connectivity. Five9’s availability demands end-to-end Chinese Wall redundancy of the entire datacenter networks. Compliance of datacenter replication requires a 20-mile distance between the datacenters. Privacy legislation requires the national or regional storage and handling of customer data. This all impacts the location of datacenters and therefore the connectivity to those sites.
It may be evident that an enterprise-wide, one-size-fits-all approach will not work for banks. It leads to reduced capacity and higher costs. A financial business that runs mainly office applications on its network has different connectivity requirements than a high-frequency trading desk. Synchronizing a business-critical financial application has different connectivity and redundancy requirements compared to the backup of office files. Network design can only begin once the requirements and demands mentioned above have been mapped. It pays to be completely up-to-date in terms of the developments in connectivity. It takes specialists, like Custom Connect.
Best mix of speed, bandwidth, availability and price
Custom Connect helps banks and other organizations put together the best mix of speed, bandwidth, Quality of Service and price. This may or may not be a managed service, from a carrier-neutral and independent position with an eye to the highest availability.
Custom Connect designs and implements the infrastructure that financial institutions need to connect trading platforms, datacenters, offices and locations. This may be one-to-one connectivity, from New York to London or from Shanghai to Johannesburg, or one-to-many between all the offices and the datacenter, via dark fiber or microwave. Based on owned connections or the Internet. The optimal solution depends on the situation of the financial institution’s specific situation. The solution offered is flexible: as characteristics in connectivity change over time (for example if latencies or prices fall) the solution is adapted. You can only truly offer independent advice in terms of the best solution, and ‘source’ it, if you are carrier-neutral. This means you have to know the market propositions to the finest detail – and they are always changing. New connections, higher speeds, lower prices… you have to have it all constantly on your radar. Banks can no longer do this themselves.
Tips for Financial Organizations:
- You have the strongest requirements in terms of availability; conduct a Zero Assessment to assess the actual needs
- Ensure that your own infrastructure between locations, datacenters and partners is of the highest standards
- Assess the bandwidth for each application – a one-size-fits-all strategy is needlessly expensive
- Never choose a single carrier for everything
- Remain flexible and stay alert
- Today’s solutions are outdated faster than you may think