James Rundle: Ahead of the Curve

Financial technology is full of cutting-edge development and innovation that surprises and startles outsiders. Indeed, despite a heady discussion on high-frequency trading and the small matter of a financial crash a few years back, many still see banks as staid institutions, gray and conservative in their approach to technology.

On the consumer side, this may still be the case. I can do almost anything on my cell phone now, but my bank’s app still makes it awkward to set up a payment for a new person, while the clunky, buggy interface makes it hard to move money between accounts, let alone inspire enough faith to consider using the UK’s new text-message payment initiative. Remarkably, it can still take seven days for checks to clear.

In the institutional realm, though, some of the advances are truly mind-boggling. Talk to anyone about the raw computing power required to measure risk exposures on derivatives portfolios on an end-of-day, let alone near-real-time basis. But banks still remain conservative about new technology. It takes years for compliance, technology, risk and management to be comfortable with technology that other sectors embrace readily, paying it lip service while holding it at arm’s length.

Waters’ sibling publication Inside Market Data ran an interesting story recently that steps outside this half-in, half-out approach. US self-regulatory organization the Financial Industry Regulatory Authority (Finra) is forging ahead with its own narrative of cloud computing, big data analytics and data collection techniques with various projects over the next few years. It will use Amazon Web Services to eventually host its entire market surveillance operation, conjoining fast-moving, high-volume data with the flexibility of cloud-based computing to perform the kind of analysis and observation needed to keep up with modern markets.

Cloud clearly has issues, particularly for those entrusted to look after money. But the mix of low tech and high tech—that is, low technical expenditure and upkeep for a very high-tech infrastructural base­—is hard to resist, particularly now with such a neurotic focus on cost control. Speaking to cloud advocates at both buy- and sell-side firms, one of the regular criticisms—or laments—I hear is that the financial services industry is slow to leverage the advantages of technology that has already been proven in other industries. As some say, if Amazon is good enough for the Central Intelligence Agency (CIA), it’s good enough for them.

Finra is taking steps that other regulators should. The US Commodity Futures Trading Commission  (CFTC) recently partnered with the Department of the Treasury to assist with data analysis programs, but many regulators are curiously quiet on the topic of what they have in place to actually work with the information that has been mandated through reporting. For many, that silence speaks volumes.

Manifest Destiny
This isn’t to say that cloud, or the latest new fad in technology, should be pre-ordained to the point where everyone has to adopt it. Targeted private clouds work in large-scale investment banks, but without the right level of oversight, they can cause the very problems they were meant to solve. Likewise, over-reliance on service providers can be troubling, particularly given the fact that while they serve regulated entities, they often aren’t regulated to the same degree. Firms in the UK also have to be concerned about the now-infamous “Dear CEO” letter to asset managers, from the then-Financial Services Authority in December 2012, which fired a distinct warning shot across the bows of those using outsourced services.

More than anything else, it feels as if the past few years were ones of concepts, whereas now it’s implementation. Now certain issues have been ironed out, technology estates are being rationalized and the debate is changing tenor, there’s a push toward a more intelligent use of technology, rather than just a greater use of it. And that can only be a good thing.