Living Wills Continue to Cause the Banks Problems – Continuous Compliance Requires the Introduction of Automation

Regulatory pressure in the USA is building on banks to present credible and comprehensible resolution and recovery plans.

This month many of the banks will again present their “Living Wills” for approval. Failure to have these plans signed off carries the risk of demands for higher capital allocations or even more draconian actions such as the curtailing of activities and restructuring parts of the business.

In the USA the requirement to provide a Living Will is part of the 2010 Dodd Frank legislative response to the Lehman Brothers collapse and the resulting financial crisis. These are complex documents, running to well over 100 pages of tightly worded text and diagrams. The banks are required to explain how their systems work, how the business and risk is managed and how business activities may be contained and assets sold in the event of financial distress.

This is proving to be difficult for the banks, with nearly every institution having its Living Will rejected at some stage during the process. All the Living Wills, even those that have been accepted have been described by the regulatory authorities as weak or containing shortcomings or rely too heavily on unrealistic assumptions.

Further, this problem is not contained to the United States. Living Will obligations extend across all jurisdictions around the world. In all banks, whether in the USA or elsewhere, Living Wills are being assembled using manual procedures and work-arounds – and when complete, even if the Living Will is accepted, this is not a “file and forget” process. Anytime a bank’s processes, systems or procedures are subjected to a significant revision, the Living Will needs to be revised to reflect the changes introduced. Additionally, on an annual basis, an updated Living Will needs to be filed.

All the banks filing Living Wills are very large organisations. All these organisations have highly complex interleaved, disparate IT environments, encompassing hundreds of operating systems, thousands and possibly tens of thousands of applications and very large numbers of data repositories. Manually mapping and documenting these complex, distributed systems is a resource hungry, error prone and time consuming task.

This is one area where automation may be introduced to relieve some the cost and resource demands of managing and maintaining the banks Living Will obligations. This may be achieved by implementing Hattrick’s HELIXsystem Process Assembler. The HSPA is able to continuously monitor any legacy IT environment, regardless of age or complexity. By so doing it collects every message interaction across every application and assembles these into a complete, unambiguous, end-to-end description of the underlying architecture. This description is rendered to BPMN2 format, allowing generation of any artefact that is required by any regulator to document the system.

This description continuously updates in near-real time. Once deployed, the HSPA runs in a fully automated continuous manner requiring no additional manual adjustment. The HSPA is deployed without introducing any changes to the structure of the messages, without needing agents on data stores, and without re-configuring the applications or services. It does not introduce a point of system failure, will not require any part of the system to be referred back to QA nor does it impact system performance.

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