The UK government recently ordered changes to the Financial Services Compensation Scheme (FSCS), mandating in effect that financial firms must provide a single customer view (SCV) of all account holders. This is the result of the confusion over account holdings during the recent crisis and to ensure that a bank can identify and pay back all deposits, regardless of debts, to those account holders within seven days of a default. But is the mandate for the SCV realistic?
In practice, it is going to cost the UK's banks millions of pounds, as the SCV demands major changes across all core systems, including data cleansing, tagging, linking and increased storage costs to accommodate new data fields.
According to the UK's Financial Services Authority's (FSA's) consultation process: "The set up and maintenance costs of new IT systems for quick claims processing are estimated at £891.8m [$1.38bn] over five years. Firms' obligations to tell customers about the FSCS scheme, along with informing them which trade names are covered by a particular authorisation, would have estimated set-up costs of £34.6m and ongoing annual maintenance costs of £4.2m."
Meanwhile, adding insult to injury, not only is this new reporting going to be checked for the quality and method of implementation across UK financial firms, but it will also be used to assist in examining a bank's liquidity, stress testing, living wills and more.
And where are we with these changes? By July 31, 2010, firms must show their plan for the SCV and by January 31, 2011, they must provide a customer report illustration to the FSA. And it is not just the FSA in the UK. The EU has proposals for a similar deposit guarantee scheme, as does Australia and the US.
Again, what this demonstrates is a range of disconnected global activities in response to a once-in-a century occasion when the banking system collapses.
So is it worth it? Maybe. However, it is not going to be easy and the time frames are too challenging. For example, many banks have multiple systems developed over decades, with some sourcing customer addresses as a data field from a core shared data dictionary, while others have the field stored as a customer code in a flat file. Integrating such disparate systems in a short time frame is going to be nigh on impossible.
System breakdown
The core issue is not the addition of new data fields or reporting customer details, but the changes to the enterprise customer data model, the restructuring of the operating set-up for information quality and verification, the standard for resolving technical issues and providing technical support and more.
After all, we have aspired towards SCV for decades but, if this was required by a bank, why haven't we done it before? Because there's no business case and the political barriers internally are immense. I worked with a bank in 1989 to re-engineer its mortgage process to gain a SCV. The mortgage process was chosen because it went across all divisions - credit, insurance, deposit accounts and money transmissions.
We gave up after a while because it was too difficult: "too many disparate systems across too many silos" was the response from the executive. In fact, the real reason was that the silo owners, the functional heads, were resisting the change as they felt it would lose their power base - even though the CEO supported the project!
I bumped into the board member of the bank in question recently and asked if it had ever tackled that mortgage process. "No," he said. "Still too many different products across too many different systems and divisions with too many baronial empires."
So what's the result? Where's the answer? How do we solve this? My answer is standards. The fact that the UK is adding new data fields is great, but we'll probably find that each European member state adds other ones dependent upon its country - a bit like the International Bank Account Number and Bank Identifier Code - while Asia and America do their own thing.
We need to co-ordinate global standards, particularly as the banks that are too big to fail are the ones with a footprint across all of these regions. Are we seriously asking them to make multimillion dollar changes to their core systems that are different and distinctly separated in every country and region? Ridiculous.
Chris Skinner is an independent financial commentator and chairman of London-based The Financial Services Club (www.thefinanser.com)
