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Rethinking the Way Banks Tackle Regulatory Challenges

By Harri Kulmala, Director, Global FSI Services, SAP

As long as there have been regulations in banking, they have been a primary factor in driving bank operations. Today’s regulations have become increasingly stringent. A recent study on banking innovation[i] indicates that changing regulatory requirements, in combination with the bottleneck of limited access to relevant and timely data, will be the main challenges for banks in the coming years.

To address these requirements, regulatory authorities and auditors recommend banks adopt more efficient data management practices and transition to a fully integrated and scalable IT infrastructure. Banks can no longer continue with isolated solutions where data is duplicated in different analytical applications for largely the same data set. Besides the cost associated with maintaining a disparate IT landscape, future compliance is not possible without breaking down the silos in data processing. Banks must consolidate and simplify their core finance, risk, and treasury architecture to comply.

Regulatory Arbitrage – opening a pathway to profitability

The tightening regulatory framework for capital and liquidity has put tremendous pressure on banks. The implications of new regulations will impact the way banks consider customer segmentation, pricing, and risk-adjusted profitability measures. There is significant regulatory arbitrage through improved capital and liquidity management for the early adopters. Relationship and branch managers need to be able simulate the impact of decisions on customers before making pricing decisions and commitments. Therefore, banking executives are keenly interested in tools that offer real-time decision support capability and simulation.

Consolidating and simplifying the solution landscape opens the path for greater technological capabilities to achieve real-time decision making. It creates a pathway for in-memory technology to reduce data redundancy and enhance regulatory compliance and risk management. But it also enables a bank to run more cost efficiently and control spending related to a disparate landscape of analytical applications.

Evaluating the impact of banking decisions

A real-time data platform is one of the key enablers for a bank to run complex calculations like loan-to-value ratios or customer profitability. But this analytical engine has to be fast enough to serve as a frontline tool for banking professionals. It has to provide instant feedback so the person working with a customer and looking over contract terms has the right information to price products accurately.

Adopting this type of technology requires a major overhaul of a bank’s infrastructure. This transformation takes time, knowledge, and guidance. After all, these environments were built over decades. Change will not happen overnight.

Making the transition

SAP Services is in a unique position to provide informed guidance on a bank’s transformation journey. SAP Services has been involved with many large-scale transformations where banks adopted the SAP HANA platform. We bring this expertise to bear when devising and deploying a transformation road map. We also draw on scenarios and thought processes from other industries that can be of benefit to banks.

SAP and our partner ecosystem can help banks weigh the pros and cons of various approaches to transformation. This guidance helps you identify a path that best satisfies regulatory and risk management requirements while meeting customer service and profitability targets. Our approach enables you to rethink the delivery and deployment of banking software by enabling speed to market through standardized business processes, rapid-deployment solutions, and cloud offerings.

If you’d like to explore this topic further, an executive summary of the research cited above is available to download here:

To learn more about the banking expertise of SAP Services, visit our banking industry spotlight at

Feel free to share your views with me about this topic in the comments below.


[i] Martin Hellmich, Mike Pinedo, Bjoern Schuck, Sikandar Siddiqui, and Axel Uhl. The Benefits of Innovative Information Technology in the Banking Industry in Turbulent Times. Business Transformation Academy. July 2014.

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