15 Jun3 thoughts on cleaning up big banks

A trinity of interesting news items have inspired this week’s post: “Flaws too bad to reveal”, “Financial Services Firms Face Disruption from New Entrants” and note that this weekend UBS will go live with its ring-fenced new domestic entity.

Financial Services Firms Face Disruption from New Entrants

Chris Harvey, Deloitte’s Global Head of FS, shared some interesting insights this week on how banks see competition. New entrants are on FS execs’ radar and one of the reasons is they start with a clean slate. That is a massive advantage; legacy infrastructure is a chore to change. Typically, old infrastructure is in old programming languages, highly customised and often consists of multiple, disparate systems.

HSBC money-laundering procedures ‘have flaws too bad to be revealed’

Unlike the comments from FIFA’s head of communications where he quipped that if Sepp Blatter and his number two, Jerome Valcke, were in a car together, a policeman would be driving, this headline is no joke. The Guardian newspaper cited a report to regulators form the monitor group inside HSBC implanted to ensure progress is made to cleaning up after KYC and AML failings. So precarious is the situation that the US Department of Justice has sought court approval to seal the reports and not make them public as normal.

Clearly HSBC is a huge place and change there is like attempting to do a u-turn with a supertanker in the Suez Canal. But, size has its privileges as well as its obligations; HSBC has enough money to resource the work.

I am reliably informed by an inside source that indeed the state of the systems and the project is so absolutely awful that you could not make it up.

UBS: the solution TBTF, Too Big To Fail, and a new entity

This last weekend UBS completed its response to TBTF with the splitting out of its domestic Swiss business into a new legal entity. That has been achieved with some re-use of existing systems, establishing a new legal entity on each system. It has also been a chance for a weed out of old systems. Time was clearly too short to start from scratch.

Lessons to be Learned: Fixing or remediating flawed systems and processes inside existing legal entities is very hard indeed. Even if you have deep pockets and plenty of resources, positive results are not certain.

Using a new legal entity offers a potential route to improved efficiency and effectiveness. If you have the luxury of doing that without having to use any legacy systems, then that is the best possible situation.

Financial Services firms will rarely have the total flexibility of new entrants; sensible use of new entities may well offer a route to avoid the pain of having to remediate moribund systems and processes.

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