Ever wondered what the world of investment banking has in common with pancakes? Mark Hills, Programme Director at Delta Capita, discusses how head of FX product management at Deutsche Bank, Dirk Ward, mused on this very question many moons ago – comparing his own firms attempts to stay competitive with that of two rival pancake shops.
Ever wondered what the world of investment banking has in common with pancakes? Once head of FX product management at Deutsche Bank, Dirk Ward, mused on this very question many moons ago – comparing his own firms attempts to stay competitive with that of two rival pancake shops.
One shop finds that a competitor has devised a new “innovative” way to make better pancakes and as a response, decides to revamp its kitchen and poach its rivals star pancake maker. At great expense, the shop in question stays ahead of the pack, yet they are still providing the similar pancakes only with a “cherry on the top”.
Never has this comparison been more relevant to the banking sector than in this ever more sophisticated era of financial crime. For too long now, when it comes to combating the latest threats, investment banks have gone down the path of building their own technology to create in-house capabilities around areas such as Anti Money Laundering (AML). But why, like the competing pancake shops highlighted by Ward, are banks continuing to build on their own capabilities when there isn’t enough of a differentiator for them? After all, every bank has the same objective when it comes to combating financial crime – trying to stop it.
The problem with taking the same old approach of replacing existing AML systems with slightly better technology is that it is no longer fit for purpose. Today, banks are faced with a powerful pincer movement of regulators demanding more information, and financial criminals becoming increasingly smarter. A combination of these pressures means banks have no choice but to make an evolution internally both from a technical and operational perspective. Particularly for the tier two and three banks trying to stay compliant on limited resources. These firms simply cannot afford to absorb a £163 million fine for anti-money laundering controls failings.
In order to break this perpetuating pancake shop cycle of continuous internal restructuring to combat the latest threats, surely it is better for banks to look to the outside world for support. For example, banks can now benefit from a pay-as-you go structure, which means they do not have to make massive upfront technology investment on a piece AML kit. Instead, banks can mitigate against the ongoing cost of ownership by rolling their existing AML function into the one provided by a managed services provider.
As financial fraud continues to become ever more prevalent and regulators more watchful, there is no question that fresh thinking in the form of specialist managed services is required. Banks can now quickly deploy advanced AML capabilities over existing systems, so there is no excuse to continue to adopt the highly costly traditional approach of ripping and replacing existing systems to combat the latest threats. Those quickest to adopt a new managed service based approach may even start reaping the rewards before Shrove Tuesday.