The Bloor Perspective: Financial sector IT upturn, Basel II and web services quality

Optimise Magazine, a US publication, has recently produced some interesting conclusions in its monthly feature 'Gap Analysis' concerning the correlation between business outlook and technology investment for 2004. The survey may be US-based but the results do not seem to differ from the European environment.

Financial services companies are substantial investors in IT. IT is a visible and tangible means of leveraging business and resolving business, administrative, regulatory and compliance issues. Historically, business optimism is a prelude to increased investment and spending in the financial services sector:

- Contrary to historic patterns it seems that the business optimism is unlikely to translate itself into increased IT spending. Executives are optimistic about business but seem to be continuing their cautious approach to IT spending.

- Substantial technology investment is predictably going into enabling financial institutions to meet the plethora of compliance and regulatory requirements, outsourcing and risk management. This is not the most stimulating area for technology investment. The nature of the work is unexciting, not usually innovative and almost certainly lacks innovative qualities.

- Outsourcing in the financial services sector continues to blunt substantial elements of IT spending.

- On the innovative side, much of the work tends to be based on applications integration work.

A time gap is now growing between business upturn and development, and readiness of the technology resources to support it. An upturn in business there may be but where is the innovation? Low interest rates and low inflation combined have succeeded in producing low returns on financial investments. This has blunted much appetite for investment in financial assets as property and other tangible assets demonstrate better returns.

Financial products, which support such investment, have proved innovative. In other ways financial institutions have not provided any immediately attractive financial products for this environment. Financial scandals have assisted in producing a sense of cynicism towards investment in financial assets. A time gap may exist between business upturn and technology investment in the financial services sector but absence of innovation it may be calmly discounted.

*Compliance and IBM*

Sticking with the financial sector, IBM recently last week announced its 'Risk and Compliance - Basel II Offering'. The goal of this offering, which encompasses a diverse set of products, is "to deliver an infrastructure to help clients not only meet compliance demands but also enable them to gain control of their information assets, improve business operations and ultimately make better business decisions".

In other words, this is a solution that addresses all of the needs of Basel II but also goes beyond those requirements, not in technical terms but in providing additional capabilities that go further than what is mandated by Basel II.

Indeed, you could argue (and we would) that Basel II (and, indeed, all compliance solutions) offers an opportunity as much as a duty. Yes, there is a substantial investment requirement. Yes, that's a bind. And if you simply treat it as a nuisance then you will get not any benefit from it. But you can also view it as providing the wherewithal to better understand and manage your business. And that, in the long term, must be a good thing.

IBM's view is that the major challenge facing Basel II compliance is in data management. We agree. And, again, the same is true for any compliance or corporate governance issue, whether in banking or elsewhere.

IBM defines a number of data management issues: identifying the data in the first place, locating that data in source systems, understanding the structure of the data, extracting (either directly or within a federated environment) and transforming the data, cleansing it, choosing a database management system, the ability to provide fast and reliable access to the data, the facility to store risk calculations (specifically a Basel II requirement) and analytical results, the production of all regulatory reports, online analytical processing capabilities, and data mining.

From a general perspective there are really two aspects to this: the ability to ensure that you have accurate and well-understood data, together with an understanding of where that data has come from (data lineage), and the ability to exploit that data. Such considerations apply, or should apply, to all industries at all times.

To support all of this, IBM primarily relies on its own technologies and expertise though it also includes partnerships with Ascential and Informatica for data movement.

*Web services service levels*

Web services will only become the norm if users can be assured a level of service. They will not be deployed in earnest unless the operations department is confident that they can provide this level of service. The operations department need tools to monitor the web services and to react to a situation before the user becomes aware of a drop in the service level. This is complex when the total service is provided by a bevy of web services written by and provided by different departments and enterprises.

What tools do operations managers need to automatically support web services? First, they need to be able to ensure the individual web service and the platform it sits on are performing correctly. This is really no different to system management of traditional applications and the same tool can still be used. The next level is monitoring the performance that one web service supplies to another and checking that it meets the service level agreed between the two services.

Actional's Looking Glass and, the recently announced, CA Unicenter Web Services Distributed Management (WSDM) both assist in this space.

These tools measure the performance of running processes, so will only detect a problem when a new process runs. If the web service is unavailable, the time to fix the problem will adversely affect the calling web service or end user. This will mean at least one unhappy client but is likely to mean a lot more as new requests pile up.

To be really effective there is a need for a monitoring tool to discover the problem before another service or user is impacted. The only way to do this is to run synthetic transactions that 'ping' the service to check that it is still there.

Actional has just announced its Watchdog product that creates and monitors such synthetic transactions. It can be used in two ways, first just to ping a local service to ensure that it is still available. The second use is to initiate the ping from a remote service to check that the service is accessible and has a response time within the SLA from the remote site.

Watchdog is just the latest in a series of new functions that are needed to fully manage web services. We expect further functions to be added as web services become mainstream. One obvious extension would be the ability to include business understanding in the monitoring. For example, the SLA for a Gold Card customer would be different to a standard card.