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Financial advisers need one version of the 'truth' to govern transparently and manage risk responsibly

With more than 10,000 submissions from consumers, a thousand-page report detailing a multitude of perceived shortcomings and the Hayne Royal Commission declaring that ASIC is too close to the big banks, the Australian financial services sector is under greater scrutiny than ever before.

However, at a time when regulators and investors are demanding that their advisers focus ever more resources on risk management and associated areas of governance, the financial services sector is facing an uphill audit challenge, due to its IT legacy.  

Most professionals agree with the need for strong fiduciary responsibility and transparency, but in order to do their job correctly they need a clear overview of the organisation or portfolio, especially since a regulatory emphasis on systemic risks has emerged since the financial crisis.

Unfortunately for advisers grappling with heightened regulatory scrutiny and digital demands, that overview is often impossible. Even worse, outdated IT systems and poor communication can mean that they unwittingly rely on differing versions of events and long-superseded data.

To ensure that the appropriate information strategies and processes are in place to avoid legal risk for breach of fiduciary responsibilities, as well as financial risk associated with the potential loss of clients and client assets, a single version of the truth is needed and it must be reliable and up to date. That means tackling the legacy systems left in the shadows, which threaten to derail the new era of transparency by undermining the information on which it relies.

Most financial services organisations have been through many technology upgrades over the years, the latest usually state-of-the-art. While in theory those investments should have provided smoother and more thorough engagements with regulators and investors, in reality, piecemeal upgrades to infrastructure have left significant areas at greater risk.

The perceived reluctance to commit a wholesale upgrade has not always been motivated by cost: indeed, more modern and unified IT should offer cost efficiencies, but change implementation is difficult and fraught with risk, especially in a financial world placed under the media and regulatory spotlight. A number of banks, for example, have experienced high-profile failures managing change in customer-facing systems – and these have damaged their public image.

However, this understandable reluctance to review areas where the IT infrastructure, though old, appears to function well has left legacy systems that are well past their sell-by-date dotted about the financial sector. When Phillip Lowe entered the role of governor of Australia’s Reserve Bank, he promised to update Australia's banking system, stating that current payment systems are still constrained by solutions put in place decades ago.

Some core operations in financial institutions still rely on paper documentation, and since non-digitised information is next to useless, that data is manually entered into a core system or even worse, spreadsheets, for use elsewhere.

Not only is this painfully inefficient, it also poses a serious data security risk. In addition, the question is posed of how long it takes before updated versions of the data become available to managers and executives – if ever it does become available in a meaningful way that can easily be analysed in the context of other departments and risk factors. The oldest of the legacy IT systems have thus become shadow technology – information silos that cannot easily be audited or assessed.

Whether relating to the operational aspects of a business, an investment portfolio or - in the case of regulators, the entire financial sector, the impact of this approach can be strategically significant, as opportunities are missed due to uncertainty and misinformation. As a result, systemic threats can build up undetected. The time has come for the industry to tackle this challenge and move towards a single digital platform, with credible audit trails and one version of the 'truth' that can allow advisers, investors, trustees, administrators and regulators to view the full workings of an organisation or investment portfolio.

Given the risks inherent in wholesale technology change, the prudent and most practical way to build the single version of the truth required by advisers is by harnessing an enterprise information platform. This application can become an information hub to not only tie disparate systems together within a large organisation or portfolio, but also directly create alternatives to the most out-of-date systems, such as those still relying on paper forms.

Such enterprise information strategies, which are implemented with little disruption to an organisation and work alongside existing IT systems rather than replacing them, make access to all data possible from a single point that is secure and up-to-date. At the same time, strict access management ensures that only individuals with suitable need, clearance and seniority within a company can access or change data.

Not only does such the platform establish a single, reliable version of the facts, which are securely available to high level users, it can also be used to automate many of the functions that are required to establish risk transparency and build clear communications with investors and regulators.

By cutting out the silos and shadow systems, advisers can increase operational efficiency and governance, while supporting processes such as fund administration, claims management, risk management and financial reporting, as well as customer interactions. This helps build a more resilient industry and allow better services to be offered where risk must be understood and managed. Additionally, much of the red tape heaped upon the sector in recent years can be automated and its burden reduced.

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