What can banks learn from public sector when it comes to IT?

Could the ring fencing of UK banks be an opportunity for them to share more services in common functions?

Daniel Wakefield, head of capital markets at business intelligence specialist IMGROUP, wrote this for the blog:

Ring fencing –  An opportunity for Banking to learn from the public sector’s Shared IT Services model.

By Daniel Wakefield

“With George Osborne’s Mansion House speech (on ring-fencing banks) ringing in their ears, there will be no doubt in the banks’ minds as to the challenges that separating “the inseparable” will bring. Although the deadline may seem like a way off yet, banks will need to invest a significant amount of time and thought to cope successfully with a restructuring of this size.

At IMGROUP, we have customers who are already engaging with us to answer the fundamental question – how can I safely manage the necessary technical separation in a cost effective way?

The challenge is a big one. IT complexity reigns supreme -but it isn’t impossible!

Banks will be forced to carve up their data, an opportunity for them to consider not only what must be separated, but where data can still be shared. One option would be to keep the data in-house and segment it, reconfiguring systems and adding layers of access intelligence on top – this is really a band aid solution however, adding more complexity to an already multi-layered legacy system.

The ring fencing requirements should instead act as a catalyst for banks to review their data management strategies, looking to future proof rather than apply a quick fix solution.

One approach perhaps is to take a good look at the public sector (and the NHS in particular), which has made successful use of the Shared Services model for many years now, using it to support common functions such as finance, procurement, estates, facilities and of course Information Technology and IT services.

It is quite simply a successful model, and there are now many shared service agencies across the UK supporting multiple different public sector organisations. Significantly, their challenges also mimic those we hear about in banking;

•   They don’t want anyone else owning/touching/seeing their data
•   They don’t trust anyone to manage their data/applications/systems/vendors
•   They want to manage it themselves

All these statements are understandable when dealing with such sensitive and business critical information. That said, just look at the success of the G-Cloud programme – many public sector organisations are using a mix of on-premise and hybrid/private cloud services that are processing sensitive financial, individual, medical and patient data in a secure way.
So why would this model interest the banking sector? Where both retail and investment arms use common data, applications and infrastructure between them, then using a shared service could:
•    enable increased economies of scale and avoid duplication of IT services
•    encourage and enable both arms to work together and share knowledge
•    enable each arm of the bank to focus solely on its core banking business while the shared service focuses on its core objective of supporting both businesses
•    Savings of time and money on individual supplier/vendor management

So ring-fencing doesn’t necessarily mean added cost, complexity and duplication. Banks can face this challenge head on and look to share the burden and rewards across their two entities. In a quest to future proof their systems, a private cloud shared service well could be part of their answer.”

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Hello, Karl. This is E.G.Nadhan, HP Distinguished Technologist.

I really enjoyed the article that you have published in this post. Daniel calls out a striking parallel with the shared services model in place within the public sector for adoption within the Financial services industry. Also agree that Ring-fencing will have an enterprise wide impact within the applicable financial institutions.

Recently, I have been studying with great interest the emergence of cloud computing within various industries -- or as some might call it -- industry clouds. Your post here and Daniel's references highlights the impact that federal mandates like ring-fencing will have on the emergence of clouds within the financial industry.

While there may be generic triggers that apply across several industries, there are some triggers that are very specific to a given industry -- like ring-fencing is in the Financial sector.

I have detailed my thoughts in this post on "Ring Fencing to trigger growth of Cloud Computing in the Financial Industry" -- https://bit.ly/Nd4EXy

Please check out my post at your convenience and let me know what you think.