European banks raise data management game in response to new regulations

European banks need to improve their handling of data if they are to recover from the financial crisis and comply with demanding legislation

This article can also be found in the Premium Editorial Download: CW Europe: Banks tighten data handling in race for compliance

The warning could not be starker. Rasmus Werner Nielsen, chief finance officer of Nordea Bank Denmark, says banks across Europe need to improve the way they handle data if they are to recover from the financial crisis and comply with the demanding legislation resulting from it.

“You will see banks go down simply because they don’t have data discipline,” he told the Teradata Universe conference in Copenhagen earlier this year.

Following the crisis, banks faced an alphabet soup of legislation, developed by various authorities around the globe, which will report how much capital they hold and how they report risk. 

In Europe, there is Basel III affecting capital ratios, the European Central Bank demanding faster and more detailed reporting (MFI 3) and the European Banking Authority developing new financial reporting under FINREP. 

Meanwhile, the US has developed a Foreign Account Tax Compliance Act (Facta), which also places greater reporting requirements on banks operating in the country.

This, together with ongoing challenges in business, has pushed data up the agenda at Nordea Bank, according to Nielsen. 

“We have been squeezed in capital; we’ve been squeezed in liquidity. New regulation is coming into place. You need to react quickly to adapt to the new rules: coming from the government, coming from central Europe and coming from ratings agencies," he says.

“We had nine initiatives in our group finance function during 2009/10. The only initiative that was not cut or closed was this data initiative. We kept the budget throughout the crisis, which was tough.”

But compliance alone was not enough to see the data unification project survive. It also had to fit with the overarching business objective, says Nielsen.

Nordea Bank €100m data warehouse

Nordea Bank is based in Sweden, with nine “home markets” in the Baltic region and Scandinavia. It has more than 1,000 branches worldwide, serving 11 million customers, including 600,000 corporate customers.

Three years ago, the group finance function agreed to lead a data warehouse project for financial information with a budget of €100m. The aim, Nielsen says, was to create the “data discipline” needed both to serve customers better and comply with incoming regulation.

The bank was created from the merger of four separate financial institutions during 2000, each with its own legacy systems. Data was governed by manual processes, held on spreadsheets and locally managed. “We needed to change things to be a leading European bank,” says Nielsen. 

The project was managed by finance, because that department owns the data and the processes, he says: “We did not use IT that much – it is a group finance project with a little bit of help from IT.”

The project team within finance involved other departments, including markets, treasury and credit, to create a steering group. It then selected Teradata as a technology partner.

“The most important principle is to create one version of the truth,” says Nielsen. To do so, the finance team was well placed to build the common definitions and master data necessary to compare like with like across geographies and business functions.

You will see banks go down simply because they don’t have data discipline

Rasmus Werner Nielsen, Nordea Bank

The data warehouse architecture starts from sourcing, includes a landing area, data integration and business transformation. A shared business semantic layer enables a reporting semantic layer, which in turn supports applications.

Business management applications can now use the same data as compliance applications. Nielsen advises: “Get the data, get it organised and then start to use it for all types of purpose.”

Based in Stockholm, the data warehouse runs 720 hard drives, each with a capacity of 300GB. It stores 11.2TB of data, including more than seven billion records.

Nordea has now completed the roll-out across four home markets. As a result, reporting lead times have fallen from eight days to four days. This has increased analysis time, improved quality and reduced cost, according to Nielsen.

On a monthly basis all managers and financial controllers now receive the branch results in the same way, with drill-down to customers, accounts and products, all from the same coherent, consistent data, he says.

The team has introduced a customer profitability application to help relationship managers. 

“That is how we sold the whole data warehouse structure and the cost to management,” says Nielsen. “When senior relationship managers have meetings with the customer, they can be easily well prepared, instead of spending time getting the data and asking if they are right.”

Business value beyond compliance

In the current climate there is a focus on compliance. But financial institutions must look for opportunities to improve business performance, as well as complying with regulation, for data management projects to succeed, says Julius Abensur, principal consultant at PA Consulting.

“If you have data that you can share across the business, then you reduce the cost of compliance, then you can reallocate capital to other areas of the business. Regulatory compliance is an opportunity. It is about asking, ‘How can I make my operations lean enough and speak the same language and create synergies?’,” he says.

With the legislation on the horizon for the financial services sector, the opportunities for data integration are likely to arrive thick and fast for years to come.

Case study: UniCredit’s cross-border data warehousing without its own budget

Most data warehouse projects involve a big budget. Outlined here, Nordea Bank is spending €100m on its projects to unify financial data across its business functions and regions.

But faced with a similar challenge, UniCredit, Europe’s eighth largest bank, took a very different approach.

“The idea was to find a space for our implementation in other projects," says Domenico Ambrisi, head of chief finance officer support services (PL), UniCredit Business Integrated Solutions, says. "Whenever another project was launched, we found a space to innovate in our areas.”

For example, the data warehouse project was able to piggy-back onto a banking platform upgrade, he says. “In the last two or three years, we changed the commercial banking platform in Germany and Austria. We leveraged these projects to complete a piece of our architecture.

“Being synchronised with them we, are able achieve, country by country, another piece here or there. We did not launch a €200m project. We were able to leverage other projects,” says Ambrisi.

We did not launch a €200m project. We were able to leverage other projects

Domenico Ambrisi, UniCredit

UniCredit spans 22 European countries, with more than 9,300 branches and in excess of 156,000 employees.

Despite the spread of the business, the data warehousing initiative was able to find space in other projects because it was allied to the priorities of the chief finance officer, says Roberto Monachino, head of data governance at Unicredit Group.

“This is question of governance. From the CFO perspective, I have the governance of the CFO processes. Then I have to decide the priority. Other IT projects had guaranteed us a requirement because we give them a priority of what to do. Having myself in the business was important because I accepted that the new evolution in data management should be done within new technology,” he says.

Before building the data warehouse, Unicredit created “golden rules” for profitability, which define a common vocabulary to all products, key performance indicators (KPIs) and defines when such KPIs should be implied, says Monachino. 

“This is very important before you do implementation. Without it, the data warehouse is a technical solution only,” he adds.

The project drew data from the legacy system to get them into a centralised environment: the CFO data warehouse. This consolidation has achieved savings and improved consistency. The 100TB data warehouse store details of five million contracts.

One successful application has been to create a pricing tool for customer relationship managers, says Monachino.

“There are 600 users doing pricing simulation. This can propose to the relationship manger the break-even plan for a particular customer and the minimum price to achieve the target,” he says.

Read more on Financial applications