As banks and other financial services firms struggle to reduce costs, achieve greater efficiency, manage compliance requirements, strengthen cyber security and increase revenues, the going is getting tougher and much more complicated. That’s why financial services veterans like Tom Sanzone, the Booz Allen Hamilton Executive Vice President who oversees his firm’s commercial financial services consulting practice, tend to discuss the industry’s challenges with great care and attention.Sanzone recently took time to reflect on important changes, challenges and opportunities within financial services. Consulting sat down recently with Sanzone.
Consulting: What are the most notable drivers of change affecting the industry?
Sanzone: The drivers having the greatest impact on financial services firms haven’t changed since the economic downturn, but they have intensified. For example, the need to become more competitive—to attract and retain customers and deliver value to shareholders—has intensified as the economic recovery moves at a slow pace and margins continue to get squeezed. In response, decision makers are focusing on expense reduction and efficiency, but the benefits to be gained from their typical tools have been exhausted. Also, once sufficient perimeter security is proving to be a wholly inadequate deterrent to protect the FS industry. Compounding the tension of this environment is heightened regulatory scrutiny and a new, more aggressive approach to enforcement.
Consulting: What are the biggest challenges financial services clients are facing today?
Sanzone: The primary challenge facing financial services today is to strike the right balance between risk and reward. How can non-core functions be spun-off or IT infrastructures streamlined in a manner that increases value, but does not significantly increase operational or IT security risks? How can institutions ensure compliance or manage risk across massive organizations comprised of a dispersed workforce and siloed technology platforms and databases?
Consulting: What are the opportunities?
Sanzone: Financial services institutions need assistance in identifying, defining and implementing new solutions and operating models that will make them more efficient without jeopardizing security or compliance. For example, institutions need to identify non-core functions such as vendor risk management that can be provided through managed services, freeing up budget for functions that more directly contribute to enhancing revenue. To facilitate sound decision making, financial institutions require insights into the activities of their peers and competitors. Assessments leveraging competitive intelligence regarding performance and spending in areas such as IT security and compliance can help FS leaders understand where change is needed and better justify decisions to skeptical boards. This may be most critical in the area of compliance where a flurry of spending helped financial institutions quickly react to regulatory pressure in the early days of the downturn. Still other opportunities are being driven by regulators themselves who have mandated the use of qualified third-party consultants to facilitate the remediation of compliance deficiencies.
Consulting: Can you help me understand the nature and magnitude of the regulatory environment?
Sanzone: In this post-financial crisis era, regulators have picked up a number of compliance related enforcement actions that were stalled while the market settled. These cases and the astronomical fines associated with them shook the industry to its core and—in some cases—caused a drop in stock value. In this environment, the threat of a financial penalty alone can be enough to adversely impact the value of a company.
Consulting: What are some of the most promising technology-related opportunities?
Sanzone: The best opportunities don’t entail the adoption of a new concept or infrastructure, but rather the reimagining of how they are managed or utilized. For example, financial services institutions tend to limit the way they use the cloud, avoiding its use to store, manage and manipulate sensitive data. By reinforcing the security of the cloud, institutions can expand its use, creating opportunities to not only reduce cost, but also improve performance and the ability to derive value from data. Imagine how compliance reporting could be both streamlined and improved if data were kept in a single cloud. Institutions must also take a fresh look at their technology enterprise architecture and services sourcing strategies. For years, CIOs—myself included—have very effectively leveraged different infrastructure models and sourcing strategies to reduce costs, but there is more that can be done. Multiple mergers and the aging of products supported by expensive, dedicated infrastructures provide additional opportunities for cost savings.