A rapid change awaits BFSI segment, thanks to new regulations Date:   Monday , March 05, 2012 Trends CIOs are concerned about We are globally helping our clients in capital markets, commodities trading, and risk management. Financial markets that drive the economy and Global Economy are becoming more and more interconnected. From an investor’s point of view, they are looking at every little place they could make profits in. For example, all the investors are moving their investments in Europe and U.S. to Asia. Now they need to worry about the different trading systems that are required to regulate this. They want to get into that market with minimum risk. All these investments need understanding of the price shifts, regulatory compliance and knowhow of territorial risks. This requires a lot of technology, testing and quality assurance. The other trend is that of a systemic risk. It becomes an important task to avoid the major problems that caused the global economic crisis. The players now want to collect data from different places and have a view of systemic risk or macro risk. Hence, a lot of regulations like Dodd-Frank are coming. So, we not only want the market participants to invest, but also central banks to invest too. The reason is that all of a sudden they are going to get a lot of data from people who are trading in that area. For example, we work with the European central bank where we are building a centralized data repository in which all the people are going to asset back security (security based on loans). This data is going to be collected and analyzed. All these aspects require investments which not only have operational risks but also reputational risks. From a regulation perspective there is also a systemic risk. Keeping all these in mind, lots of companies are trying to do more with less. We have CIOs from investment banks outsourcing some of their core functionalities. The size of this "over the counter business" is about $600 trillion. Asia could be around a 20 percent of this figure, India being an obvious part of it. So, when we see India competing against the big players, it is definitely a positive growth in an investment perspective. What they want to do is to outsource and build a structure where their people and we can work together as a team in a global structure. They are getting our help on complex number applications and they have to know that this is handled by the right people who will be able to build and continuously improve their systems. Not only are we part of an external ecosystem which has all the market players in it but also an internal ecosystem where people can build a career in the global market. For example; in India we have a training program called the global markets institute, it takes the campus hires, lateral hires and trains to build the required capabilities. If we take testing for instance, they would not only need QA skills but also applied QA. Basically, we provide with a lot of training and development for our hires and this creates a higher value proposition to our clients. 2012 - Impact on the businesses A large part of the OTC market came to a point where nobody understood what was being traded. A company could give loans and pass that risk to another company, which would then further pass it on to a next company through an instrument which is called the asset back security instrument. At the end of the day the fourth company might not even know how much risk they are taking on. This is not a good spot to be in, what is needed is transparency, so all the players in the trade knows what really is at stake and how it is going to impact the global economy. If there is transparency, then one big player cannot bring the whole system down. A lot of investment banks were trading on behalf of investors as well as with their own money; this created conflict of interests. A few months ago, a big investment bank lost around $200 million due to a rogue trader. Now regulations are coming into play restricting these. The regulatory commission has started keeping these players in a closed loop and there is a lot of scrutiny around the actions they take. This has forced the banks to make their investment strategy more reasonable and rational. They also need to invest more money into building the required transparency into their proceedings. Internal checks, balances, and regulatory reporting will also be managed better. Basically, everything from trading to reporting and compliance will change. Changing business dynamics with customers The proverbial barrier between business division and IT division is now disappearing. We are in the hub where all of this is happening. We have already seen this happen as the central banks invested in this area. What they need are partners who can help them with these, this is where we come in. For example, there was a Canadian Investment Bank that was trading in other asset classes globally and wanted to get into energy and precious metals as well. We ran a global workshop and helped them in upgrading and integrating their systems so that they can look at these things in a global way. There is an organization called DTCC in the U.S., they are running programs which are helping come out with the OTC regulatory programs and we were program managing it. The participants in the program where the 10 largest investment banks in the U.S., so we had to manage the expectations of these players and come up with a regulation that can be then put forth in the whole industry. Essentially we run workshops for our clients, guiding and educating them on how their internal systems will have to change and what additional networks or interfaces they will have to create with other bodies or organizations and what does this mean in terms of investments. Key priority ahead In 2012, our priority would be to expand our footprint in the regulatory and risk space. One angle of this would be to expand our reach in the Asia Pacific region, as most of our clients are expanding their businesses here. Another important aspect for us is investing in the right people, building their expertise around all these is a constant project of ours. The game is not about cheap labor, not to put an army of 1,000 average people on a project, rather to have a few really good people into building the next trading system. It is also not about the number of clients we serve; it is about building deep rooted relationships with our clients where you actually become a significant part of them. Our clientele includes five of the world’s top investment banks, three out of five of the world’s largest oil companies, six of the top asset managers and more. (As told to Hari Anil)