Its fascinating to think about Microsofts role in driving technological innovation in private wealth management, one of the core areas of focus for the Capital Markets business in FY20.

In late August, I attended Market Groups Annual Private Wealth Florida Forum where I moderated a panel discussion on asset allocation, discussing how wealth managers balance risk and opportunity in their asset allocation strategies. Below are a few highlights from the panel discussion.

Interest rates

We began with a discussion of how current interest rates are impacting asset allocation. One of the panelists highlighted that low-interest rates are driving an over-allocation to equities while an increase in interest rates could create a reverse tidal wave. His expectation was that rising rates would lead investors to head for the exits in credit markets leading to a potential collapse in bond prices. However, when we returned to the topic later on, there was no consensus among the panelists. In my opinion, US interest rates will remain low and in fact, may even turn negative.

The rise of passive management

The secular shift from actively managed assets to passively managed vehicles has been striking, but not surprising. Academic research has shown that active management does not produce superior results to passive management. Rather, the time it has taken for the shift is surprising. I believe that some of this is technological innovation not of the digital kind, necessarily but mostly product innovation, involving the creation of ETFs and funds that are easy to trade and lower the barrier to entry.

Customer-specific asset allocation

An area often overlooked by allocators is allocation within specific customer relationships. Wealth managers are faced with important questions: In a family with three generations, how should the family optimize the allocation of an investment in a high growth fund that may generate large tax liabilities? How should the allocator optimize the use of intrafamily loans to minimize these liabilities?

The bottom line

Microsoft has robust capabilities to address the challenges discussed above:

• Microsoft Teams is purpose-built for the private wealth business and should be readily adopted by the advisor community.
• Wealth Dynamix, a state-of-the-art CRM and customer lifecycle management (CLM) platform and Microsoft partner, will help drive the adoption of Dynamics for private wealth management and asset management firms.
• The power of all three Microsoft clouds can enhance or even automate KYC and other complicated processes.
• By moving risk compute to the cloud, firms can enhance their risk management capabilities.
• By adding a layer of Data & AI or PowerBI to time-intensive processes, our largest asset management has enhanced their middle office processes and risk compute.

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The theme of last weeks Sibos 2019 financial services event in London was, thriving in a hyper-connected world.

Having been in banking for more than 20 years, its a very fitting message for an industry that is in the midst of an incredible amount of change. While financial services organizations are certainly facing challenges driven by todays digital age, there is plenty to be optimistic about.

Todays digital innovations are creating unprecedented new business opportunities, and weve reached a tipping point where the industry is focused on embracing the best of them to move their businesses forward and thrive.

With record-breaking attendance, that optimism and determination were evident throughout this years Sibos which provided a pulse on where the industry is today, and where its headed. Here are my observations and thoughts.

Financial services top priorities

• Lets get real. As I mentioned earlier, the industry has moved from debating the value of these new technologies to a focus on accelerating real-world deployments. Financial services organizations are looking for technology vendors to take the lead in enabling innovation and solving their business transformation challenges.
• Using data as a competitive advantage. As we know, the financial services industry is flooded with data and its become a huge task to convert it into logical and useful insights. Todays emphasis is on tapping into new forms of analytics and AI to unlock its potential and infuse insights for a competitive advantageby enhancing the customer experience, improving operations and security, increasing productivity, managing risk, and more.
• Modernizing payments and core banking. This is on everyones mind. While payments are the backbone of every bank, the playing field is no longer level for banks processing on batch-oriented legacy mainframe systems. The rise of fintech, the shift in consumer demands, and the pervasiveness of data have altered the landscape. To keep pace with these challenges, banks are prioritizing the need to modernize their platforms to improve agility and significantly lower costs of managing legacy systems.
• Turning to the cloud. The cloud is also no longer a question mark. Its real. Regulators have even come to see cloud as a compliance-enabler. Banks are recognizing the cloud can offer greater security and controls than in their legacy, on-premises environments, and holds the key to helping unlock the value of their data, improve business agility, reduce costs and gain a competitive edge.

Accelerating digital transformation and cloud adoption

At Microsoft, understanding the banking industrys needs and objectives is very important to us. We want to help organizations become more agile and make smarter decisions by providing a trusted, highly secure and compliant cloud that is embedded with pervasive intelligence and supported by the largest ecosystem of technology partners.

This was my first Sibos in my new role at Microsoft, and it was an incredibly energizing experience. In our booth, wealong with our partners and customerstook the opportunity to showcase what empowering intelligent banking means, and how it open doors for banks to reimagine how they modernize payments and core banking, manage risk, combat financial crime, deliver differentiated customer experiences, and more.

Our subject matter experts also delivered some thought-provoking sessions on a variety of topics, from the latest in cybersecurity, to payments in the cloud, fraud protection, and delivering on innovation through cultural transformation.

We also announced exciting new tools and collaborations to help accelerate digital transformation and remove barriers to adopting cloud technology. This includes becoming the first public cloud provider to enable connectivity with SWIFT Cloud Connect on Azure; general availability of our new cloud-based Dynamics 365 Fraud Protection solution designed to decrease fraud costs; and updates to our Microsoft Banking Accelerator that add Banking Industry Architecture Network (BIAN) API service domains to unlock new open banking opportunities.

One of my favorite parts of our Sibos participation was being able to showcase our customers digital transformation journeys and their recent successes including Anglo-Gulf Trade Bank, Bank of New York Mellon, State Street and TD Bank. I share more details on our Sibos news and customer momentum on our Official Microsoft Blog.

The opportunities ahead

Im excited about the industrys future. With todays technologies, financial services organizations have a tremendous catalyst to improve competitiveness and business agility, drive growth, elevate customer experiences and keep ahead of changing regulations and cybersecurity threats. In my new role, I look forward to helping more financial services institutions empower intelligent banking and thrive in todays hyper-connected world.

To learn more about Microsofts activities at Sibos and our ongoing work in the financial services industry, visit our Financial Services page.

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Every year, the banking industrys brightest innovators come to Sibos to educate and inspire attendees with fresh ideas and creative solutions to some of the most common and constant challenges in modern banking. Were excited to see what new advancements and transformations our customers have made since last year! Microsofts value as a trusted thought leader and strategic partner will be on full display focusing on helping banks reimagine how they modernize payments and core banking, manage risk, and combat financial crime. Join us for 15 minute Fin Talks in our booth (Z131) delivered by subject matter experts on a variety of topics, like how to deliver on innovation through cultural transformation, exploring the latest in payments in the cloud, fraud protection, and so much more. Additionally, you can sign up for a one-on-one meeting with Microsoft executives, or Envisioning sessions that are designed to help you imagine the possibilities in your transformation journey available on the 2019 Microsoft at Sibos event page.

Modernize payments and core banking

While payments are the backbone of every bank, the payments playing field is no longer level for banks processing on batch-oriented legacy mainframe systems. The rise of fintech, the shift in consumer demands and habits, the democratization of data, and the arrival of multiple new fintech companies have altered the landscape. Keeping pace with these challenges is forcing banks to modernize their platform to improve agility and significantly lower the costs of managing old systems. These new systemsmodern data centers and cloud-based technologiesempower banks to meet customer expectations for fast, anytime and anywhere service, while enabling banks to be well positioned to accommodate the increasing pace of new regulatory requirements. Anglo-Gulf Trade Bank (AGTB) aims to deliver a modern, sophisticated digital corporate trade finance and banking solution that facilitates the required access to trade-related banking to underserved businesses, and helps bridge the trade finance deficit. While Microsoft technology powered the banks vision, Publicis Sapient, working with the AGTB team, made it happen. As consulting and integration partner, Publicis Sapient worked with Microsoft cloud architects to bring the robust vision and architectural design to life.

Manage risk across the organization

Banks are seeking to deepen risk insights, adapt to a volatile geopolitical environment, and comply with ever-changing regulatory requirements. Theyre facing looming regulation implementation deadlines, outdated on-premise systems, and rising compliance costs to meet their required risk management assessments. Leveraging cloud-based tools, infusing processes with AI, and improving data management practices can enable banks to enhance and improve risk insights across lines of business. These insights offer whats needed to maintain compliance, reduce costs, and improve capital efficiency. As more banks turn to the cloud, there is a lot we can learn from those at the forefront. UBS, the worlds largest wealth manager, is leading the industry in public cloud adoption by using Microsoft Azure for global scale, security, to improve business agility, reduce costs, and gain a competitive edge. The key to UBSs move to Azure was a significant focus on regulatory compliance.

Modernize operations against financial crime

Security threats and financial crime operations, such as cyber-attacks and money laundering, are becoming more sophisticated so new strategies must be adopted to the fullest. Failure to prevent and protect customers against financial crime is costly and has real-world consequences that extend beyond traditional banks. Verifying suspicious activity with customers is also an increasingly important part of this experience. Recent technology advances from Microsoft and our partners are helping banks improve outcomes on both sides of the trade-off equationdeploying enhanced data analytics to identify outliers faster and conduct near-real-time risk scoring while protecting web and mobile users from cybersecurity threats without compromising the customer experience. Read more on why banks are adopting a modern approach to cybersecurity, and at Sibos check out the Open Theater Session, Protecting Sensitive Information from Insider Risks.

Deliver differentiated customer experiences

To better serve consumers now and in the future, financial institutions are recognizing the rapidly changing needs and expectations of consumers. To better serve these digitally-minded consumers, there are several game-changing technology innovations that can help financial services organizations drive differentiated and personalized experiences. At their core is the ability to tap into the volumes of available data, from transactions, life-events, marketing, social, mobile and more, and use it in meaningful ways. In June we public previewed a new Microsoft Banking Accelerator targeting both Retail and Commercial Banking. At Sibos well showcase how customers can use the Banking Accelerator blueprints and common data models for banking-specific data elements (Know Your Customers, loans, mortgages, referrals, branch details, collateral, and service throughput) and help them take customer engagement to new levels.

Empowering intelligent banking

Leading with trust and innovation in everything we do, Microsoft is looking forward to working with organizations to empower their intelligent banking digital transformation and help them thrive in the hyper-connected world. We want to help organizations become more agile and make smarter decisions by providing a trusted, highly secure and compliant cloud that is embedded with pervasive intelligence, and supported by the largest ecosystem of technology partners. At Sibos, Microsoft will showcase our customers digital transformation journeys, highlight developments from key partnerships and engage with leading financial services organization from around the world.

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Air travel is a big part of my role at Microsoft. Being on planes for hours allows me to get a lot of work done without much interruption. One thing I always install before I touch my surface keyboard is the privacy screen. Unless someone is just about sitting in my seat with me, the work that I am crafting on the screen can only be seen by me. That physical privacy screen is a critical component for protecting me, Microsoft and ultimately our customers and partners.

Well in parallel, the digital privacy screen for Microsofts Azure Cloud platform includes the hardening of data access using methods such as encrypting data at rest when stored in blob storage, or in databases, etc. And encrypting the data in transit between datacenters, across machines and throughout the network. Even if customers dont encrypt the data they provide to us, we encrypt it anyway.

Privacy must go even further

When I think about data at rest and data in transit, these data stages are only 2 of the 3 really important stages to find data in. The third stage is where Microsoft is using its engineering prowess to encrypt data that is in use during computation. Now why is that important to a banking business executive or technology executive?

Bottom line, safeguarding data is an increasingly complex endeavor in todays banking world. External threats are more sophisticated, and customers are becoming increasingly vigilant on how their data is both stored and utilized.

Did you know?

Data fraud or theft are now two of the top five risks CEOs are most likely to face according to the latest World Economic Forum report on global risks. Almost 80 percent of organizations are introducing digitally fueled innovation faster than their ability to secure it against cyberattackers. When it comes to banks innovating by leveraging current on-premises infrastructure, the vulnerabilities exponentially increase.

Executing business models on top of secure data

The question is no longer how secure is the public cloud, but instead, how comparatively secure are legacy systems? Microsoft Azure shares the burden of compliance and security, offering expertise that can be hard to find in-house. As banks continue to digitally transform, they have aspirations to build the ultimate curated experience for customers by serving as the financial nucleus, dependent upon the accessibility and richness of relationship, personal, behavior and social data. The channels used to collect such data during in-person visits or online banking sessions like contact, demographic, geographic, and governmental data, can also include their third-party partners for use of cookies, web beacons or other technologies to collect and store other information about sites visited. Banks are partnering with third party software providers to leverage more sophisticated solutions and reduce the time-to-market for products and services. Security during computation is even more important when data is traversing from one third party to the next.

The bank is in full control of its data

That data collection and use by the bank is covered by Azure Confidential Computing which uses a Trusted Execution Environment (TEE) or “enclaves,” increasing the security of application code and data, and offering cloud-based attestation that is simple and highly available through advanced security features, granular privacy controls, and cloud optimized specifically for financial services. Azure Confidential Computing helps to secure the banks data while its in use. Azure is the first cloud platform to protect the confidentiality and integrity of data while its processed in the cloud. It is the cornerstone of our ‘Confidential Cloud’ vision, which includes the following principles:

• Mitigate top data breach threats
• Customers are in complete control of their data whether its at rest, in transit or in compute
• Code running in the cloud is protected and verifiable by the customer
• Data and code are opaque to the cloud platform, or put another way the cloud platform is outside of the trusted computing base

Whats the bottom line?

Today, it is becoming increasingly important to understand the full information data supply chain in order to ensure adequate data protection even while being analyzed. Azure Confidential Computing takes data security to the next level and protects data while its processed in the public cloud through the use of secure enclaves. This security capability provides the missing piece for full data protection at rest, in transit, and in use.

Check out Azure for banking and capital markets to learn more about cloud solutions that address the biggest challenges in financial services.

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As businesses work to keep pace with the rapidly changing needs and expectations of consumers, many are calling the customer experience the next competitive battleground. This certainly rings true in the financial services industry where digitally-minded consumers want to bank when and how it suits them and are willing to purchase products or services from their primary banks competitor or switch banks if unsatisfied.

To better serve consumers now and in the future, financial institutions are recognizing they must rethink the way they do business and innovate quickly. And they are turning to technology to help. A global PwC survey of the top 300 banking and capital market firms showed customer experience management is one of their three overall IT investment areas.

So, what role does technology play in delivering a better banking experiencethe kind of experience that will differentiate them from the competition and drive customer loyalty and lasting relationships?

Banking on data

There are a number of game-changing technology innovations that can help financial services organizations drive differentiated and personalized experiences. At their core is the ability to tap into the volumes of available datafrom transactions, life-events, marketing, social, mobile and moreand use it in meaningful ways.

The first are customer engagement solutions that can follow the customer journey from marketing to sales and through to service. Artificial intelligence and sophisticated analytics and machine learning capabilities can capture the volumes of generated data; integrate and orchestrate that data across lines of business and channels; and manage, analyze and present it as usable information to the people who need it to make better decisions.

Easy-to-use productivity solutions and powerful data visualization can also make it easier for employees to spot trends and take quick action. And it is not just about reacting to customer requests. With these technologies, banking organizations can uncover latent needs, predict future behavior and proactively recommend the right product or service.

When financial services firms have access to more relevant informationfrom both inside and outside their organizationthroughout their customers banking journey, it can help everyone, from personal bankers to financial advisors to mortgage lenders, seize the opportunity to create meaningful interactions that are personal, relevant and timely.

Unlocking new value

In many cases, today this information resides in multiple silos and without a well-defined data definition. Deriving value from that data is time-consuming as banks are required to undertake complicated data transformation projects to standardize the data to deliver the differentiated experiences customers are demanding. If financial services could use a common definition of the data, they can create value from that data quickly over a wide set of data sources.

Microsofts goal is to empower every person and organization on the planet to achieve more. Based on the industrys current needs, today at the Microsoft Business Applications Summit, we are releasing to public preview a new Banking Accelerator targeting both Retail and Commercial Banking. Included in the Accelerator is a banking data model, sample applications, and connected scenarios across Microsoft’s cloud, business applications and productivity tools to help take customer engagement to new levels. Heres a look at how it works.

Microsoft Banking Accelerator

The banking data model extends the Microsoft Common Data Model for banking-specific data elements such as Know Your Customer (KYC), loans, mortgages, referrals, branch details, collateral, credit facilities and more. A common definition and model enable our financial services customers and partners to build solutions on the same data model for improved consistency and new interoperability that can deliver 360-degree customer views, improved insights and streamlined processes across the various lines of business at the bank.

The sample banking applications and businesses processes span common banking scenarios such as customer onboarding and loan proposals, integrated with dashboards and reporting capabilities, to help banks more easily see what is possible and unlock business value.

And the connected scenarios included in the new Accelerator leverage Microsoft Azure, Microsoft Dynamics 365, Office 365 and the Power Platform to provide financial services organizations with an integrated experience tailored to the unique needs of their industry.

The new Accelerator and banking model were developed in close collaboration with our financial services customers and ISV partners. Heres what some of our partners have to say about their value.

The future of open banking

The new Banking Accelerator is free for all our financial services customers and partners to use and is also provided as part of the open-source creative license and available on GitHub, the largest community of developers in the world. In this way, well continue to improve our offering based on feedback and with help from the open-source community.

As we look to the future, weve also been working with BIAN and other open API initiatives to ensure interoperability to help unlock new Open Banking opportunities by allowing banking organizations to more seamlessly and consistently share banking-specific data across disparate systems.

We look forward to helping our customers take their customer engagement to new levels, using advanced and open technologies to accelerate transformation faster than ever. Learn more about our new Banking Accelerator on Microsoft AppSource.

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What is digital stewardship in the insurance sector? To answer this, lets begin with the background on data usage in the insurance industry. This industry is a unique combination of two things: (1) massive amounts of data and (2) a highly regulated and controlled process to use and store data. So a simple answer is this: digital stewardship is the process of managing, controlling and securing data, as it is used and generated through the insurance value-chain, in a way that meets all security and regulatory requirements. In this series of three blogs, well explore digital stewardship as it relates to both data and data regulations.

Data and regulations in the insurance industry

Data is the lifeblood of the insurance industry. Data is used to assign and monitor risk, which drives pricing and renewal policies that culminate in overall profitability. Data is used by the core systems to track all customer interactions, helping to deliver differentiated policy holder experiences.

Regulations are the other side of the coin. Regulations define insurance products, and how and where such products can be sold. The regulations on data, data flows and data usage are the driving force for data stewardship.

Data categories

Data has many costs. For starters, there is the pure cost of maintaining data in some systemtape, hard drives, or solid-state drives. Then there is the cost of moving data, also known as bandwidth cost. For older data formats, it may be necessary to migrate to a new format. So, given the various costs that can accrue, its worth breaking down the sea of data into categories that can be understood.

Data use by insurance companies fall into three major categories:

1. Historic policy level data
2. Current, monthly transaction level data and current output from reserving calculations
3. External data sources used to assign risk. In this category there are multiple levels of data used to determine the risk of what is being insured

Historic policy level data

Historic data has special problems and benefits. This kind of data comes from legacy systemsmostly from on-premises datacenters. These datasets are a great source of longitudinal data (data gathered over long stretches) once it is normalized between the various system formats. The data also persistsoften for many yearswith some life insurance policies being issued at birth of the policy holder and only ending at that persons death. The problem with historical data is the cost of normalization. Unless the data is transformed into a modern, shareable format, it remains in silos. If you have enough data in an old format, then you can pay the cost of transforming it to a modern format. The cost-benefit ratio depends on the value of the data.

Current monthly transaction-level data and current output from reserving calculations

To satisfy regulators, the insurer must always keep an actuarial reservemoney that must be available in case of a claim. As time goes by, money is worth less, due to inflationso insurers must invest to build the reserveor risk being unable to pay. At the same time, the insured must make payments to keep their accounts in good standing, which is the transaction-level data. The current transactional data has some of the same issues as the historical data as it feeds the same administrative systems. Additional data elements are generated by customers for many reasons. For example, new data comes as policy features change and by on-going policy level processing; more data arises from additional controls, meta data, and intermediate data from the policy valuation system and results. The difficulty here is regulator control or keeping up with new processing requirements as they are announced.

External data

The data that is used to assign risk at time of policy issue and throughout the life of the policy is now coming from varied sources, including wearable devices. A few examples: Fitbits, IoT sensors in the home, and government data sources for geographical based risk scores. Such data arrives at different frequencies and different levels of efficacy. The amount of the data that is now available, about the insured item or person, is overwhelming for most insurance companies. The general approach is to have a third party score the risk of the place, activity or person; the insurer then only tracks the scores and change in scores.

Regulations: controls imposed on products

Regulations are tied to the types of products that the insurance company is selling and the location where the policy is sold. For US-based insurance companies, the regulations start at the state level and can vary significantly between states. The US federal government has additional requirements based on the size of the insurance companies. International regulations are becoming increasingly important as more companies try to reach a global client base. Examples include: reserving and policy definition at the state level, Sarbanes-Oxley Act (SOX) at the federal level, and the General Data Protection Regulation (GDPR) and IFRS-17 at the international level.

For SOX theres the process control cost, as every stage has a control. Signoffs must occur between each stage. Heres an example of a process control: when Microsoft releases a new version of Excel, calculations must be run with the new version and the results must then be compared with the older version. Its a simple check to make sure the calculation engine is not introducing errors, but it’s still a control nonetheless. The same kind of testing/checking occurs if an operating system is changed. In this instance, only policy changes are allowed, not changes from software. The list of controls and signoffs can be huge and complicated. And so, it is expensive to maintain compliance with existing controls and to continually add new ones.

In brief, the result of compliance is the ability to repeat any calculationon demand. The actuary must be able to duplicate the calculations for regulators and auditors. Its the ultimate version of show your work.

Easing the burden with Microsoft

The complexity and scale of these problems mean automation and the constant evolution of software solutions. Microsoft constantly invents new tools and services, and partners innovate with the same devotion to solve problems. My next three blogs will explore a variety of use cases to illustrate how the insurance industry can use Microsoft technologies for enhanced digital stewardship. Ill cover these topics:

1. Data security, how to comply with all internal and external requirements (access and authorization automation, audit the personnel coming and going)
2. Keeping your company GDPR-compliant
3. Archiving solutions (for data)

Microsoft is driven to deliver solutions to enhance digital stewardship for the insurance industry across all platforms, from on-premises solutions, to hybrid, to full Azure cloud deployment and beyond. We continue to innovate with our partners to incorporate the latest technologies to meet the needs of our customers.

Next steps

Explore other ways Microsoft is helping insurers innovate and transform. Download the whitepaper “Inside the data science virtual maching” or visit the Microsoft insurance website.

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The accelerating pace of change continues to bring unprecedented challenges and opportunities to the financial services industry. While financial institutions continue on their path to digital transformation, an ever-increasing number are partnering with Microsoft to maximize business opportunity and mitigate risks. At the 2019 Executive Industry Summit, Microsofts value as a strategic partner and industry thought leader was on full display as companies gained deeper insight into AI, the modern workplace, compliance, risk compute and cybersecurity. Five key takeaways emerged from the dedicated Financial Services breakout session.

1. AI is transforming the industry

Noelle LaChartie, Director, Digital Evangelism, Microsoft, spoke on how innovations in AI technology are becoming pervasive but require constant attention to ensure the tech works to everyones benefit. Specifically to the financial institution, Noelle shared the cognitive services capabilities that infuse apps, websites and bots with human-like intelligence. From Vision capabilities that enable apps to understand faces and feelings to Language capabilities that process text and learn how to recognize what users want, AI is bringing tremendous value to the customer experience. Attendees were provided with real-world examples of how leading edge financial institutions are putting these extraordinary capabilities to work today.

2. The workplace is demanding greater flexibility and productivity

While financial institutions are all unique and have their own identities, we are seeing common trends affecting the culture of work and employees expectations on what a modern work environment provides. Workers are being asked to join more teams that are diverse across geographies, roles, organizations, abilities, and age. People want the option to work remotely, anywhere, at any time. To do this, they need the tools and digital workspaces to communicate, access their data, and stay productive. Doug Groncki, Director, Modern Workplace for US Financial Services; Beau Damon, Chief Investment Officer; and Marc Reguera, Enterprise Power BI Lead, Microsoft, demonstrated how new technology incorporating everyday AI in Microsoft 365 is helping employees to maximize their productivity in this new environment. Providing AI to your workforce can help to enhance productivity around routine tasks and processes, improve data analysis to drive better decisions and manage information overload, and address security issues that are caused by the proliferation of devices and workplace flexibility.

3. Compliance and Security must remain at the forefront

Financial Institutions understand that security threats and financial crime operations such as money laundering are always advancing, so new strategies and technologies must be optimized to the fullest. Tom Burt, Corporate Vice President, Customer Security and Trust, Microsoft, spoke about the work the Microsoft Digital Crime Unit is doing to enhance security and transparency to protect customers and deliver trust. Today, cloud-based security speeds up responses to threats, while AI takes intelligence and data that is gathered by securities solutions and transforms it into something actionable. In their fight against financial wrongdoing, financial institutions can use cloud infrastructure to be more successful than ever. Andr Burrell, Strategy Leader of Banking and Capital Markets at Microsoft, shared the importance of moving to the Cloud in a safe and regulatory compliant way. Underscoring the fact that Microsoft is best positioned to help companies on this journey is the fact that 90% of G-SIFI institutions are using the Microsoft Cloud. Microsoft employs a collaborative approach to compliance with information flow across customers, regulators and standards.

4. Partnerships are key in helping transform your business

The Summit proved an excellent opportunity for Microsoft to showcase developments from key partnerships. This included an engaging demonstration from BioCatch that highlighted innovative biometrics to identify hackers earlier than ever before using cloud and AI technology. Ed Fandrey, Vice President, US Financial Services, Microsoft, moderated an enlightening panel discussion on digital transformation. Key executives from Bloomberg, BlackRock, Zest Finance and MetLife shared their own experiences regarding how technology, AI and the Cloud are helping them transform their products and operations to delight customers. Microsoft is proud to collaborate with these and other financial institutions to bring innovative products and services to market.

5. There’s more to experience/learn: Financial Services Summit in NYC May 9

Given the continued need to learn more about these and other important topics, Microsoft announced the next Financial Services Summit coming to Microsoft’s Times Square office in New York City on May 9. Built for Business leaders and Business IT, the Summit provides you with the opportunity join industry peers for a day of thought leadership, networking, and inspiring discussion. We are happy to feature Toni Townes-Whitley, President of US Regulated Industries, Microsoft. Business leaders will have the opportunity to learn more about the future state of data and AI, regulatory compliance, digital transformation, the modern workplace, enabling the future customer experience, building a DevOps culture, Women Leaders in Financial Services Roundtable and more.

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During the late 1980s, I was just starting my 25 year banking career and I remember receiving a tour through the mainframe computer farm in the basement of a major banking institution in New York City. The technology leader said, these machines are like tanks, they are heavy, bullet proof and will run COBOL (common business-oriented language) forever. During bank merger mania in the 90s and early 2000s, the consolidation play was to merge fast by keeping all technology from both entities, connect them to the network and worry about integration later. Well, that strategy caused a lot of legacy debt. And guess what, that technology leader was right. Fast forward to 2019, those tanks are still rollin.

There is relief from the constraints of legacy mainframe computers without having to rip and replace. With hybrid cloud computing, banks can honor their legacy mainframe systems while adopting new cloud technologies. I know all about the complex process of untangling legacy systems to work with the new technology and the need for ingenious solutions to enable the financial industry to work with legacy systems while still engaging with the most modern technology.

Intelligent Banking with hybrid at hyperscale – Extend legacy systems using Azure Stack

Gartner predicts that by 2020, 90 percent of organizations will adopt hybrid infrastructure management capabilities.Predicts 2017: Infrastructure Services Become Hybrid Infrastructure Services.”, Gartner

Microsoft has a unique hybrid cloud computing solution that differentiates itself from some of the other big tech cloud providers and is distinctly suited for the financial services industry. Instead of having the banking industry upgrade to a brand new system, we leverage hybrid services so the banks can work with legacy systems and enable a layer of intelligent digital services on top. The Microsoft Azure cloud platform supports scalable hybrid environments for seamless shifting between on-premises and cloud computing. Financial institutions can take advantage of a hybrid scenario to help meet industry regulations in data security but still benefit from the elasticity of cloud computing. Azure has always been hybrid by design, based on our decades of enterprise experience. We stand alone in offering a hybrid cloud experience that is consistent across on-premises and the cloud. Even though the physical boxes are on-premise, the operating system and configurations are cloud native.

How does it work?

Lets use a consumer banking example confirming a bank balance. This everyday customer interaction lays the foundation for building next generation banking solutions. The scenario is to orchestrate the sending of a request from an on-premises demand deposit system and receive a response from virtual machines and databases in Azure cloud. For example, a branch banker wants to know how much money Howard Bush has in his bank account. The answer comes back stating $500. When banks try to extend legacy mainframe systems, the question is always how to expose the data to other systems and what can they attach to the platform to integrate the two. If you’re talking about just using the legacy COBOL system with modern up-to-date Linux or windows environment, the requirement for integration is simply: do I have network connectivity in between the things serving the API and requesting from the API? As long as the two can communicate over the same network, you’re good to go.

What are the speed bumps to be aware of?

A major sticking point for open banking projects tends to be with developing APIs (application programming interfaces). Even if it’s possible to extend legacy systems, the holdup may be the development team that is adding APIs. To build an API requires a learning curve where you’re spending quite a few cycles just understanding what you’re doing. My experience has been that for a newbie adding an API, the focus is an awful lot on designing with the API contract in mind and what it will look like between the receiver of the data and the consumer the data. You’ll find that it may take a day or 2 to get that all of that straightened out which accurate coding depends on the framework chosen. Once established, this opens up the following benefits of Azure hybrid cloud.

What are the benefits of Azure hybrid cloud?

The benefits our hybrid cloud infrastructure fall into four broad camps

1. Comprehensive security over data, applications, and identities with lower friction and faster pathways to regulatory compliance
2. A dedicated and comprehensive FSI compliance program that streamlines compliance workflow with right to audit, automated audits, and self-reporting
3. AI that monitors banking systems operations to gain insights and provide predictive analytics
4. A hyperscale and hybrid build that supports maximum transparency and security while enabling seamless shifting between on-premises and cloud

Whats the bottom line?

Moving to the cloud leveraging Azure Stack helps to significantly reduces development time. It is constructed with pre-programmed and pre-built environments that can be deployed for any given user allowing the use of modern cloud functionality for a hybrid environment integrating with your legacy system still on-prem.

Check out Azure for banking and capital markets to learn more about cloud solutions that address the biggest challenges in financial services. To stay on top of industry trends, follow this blog and me on Twitter and LinkedIn.

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In the financial services industry, there is a growing interest in the cloud and its advanced capabilities to improve existing operations and innovate and transform business. Yet, when it comes to cloud adoption and implementation, there is still a lot of confusion. The most common misperception: Regulation is a barrier to the cloud.

Debunking the cloud myth

Our team at Microsoft has spent the last seven years working closely with financial services regulators and found the opposite to be true. Regulations are tech neutral to cloud computing, and our experience is that regulators are more open to cloud technology than when we started this journey years ago. That said, there is a lot of banking regulation that comes into play when using cloud services, and both banks and regulators want to get it right. Regulators are also modernizing their laws to address cloud computing.

The role of technology vendors

As banks look to third-party vendors for cloud services, our role goes beyond providing a scalable platform they can use to run and operate their business. Technology providers are also responsible for helping them understand the cloud journey; providing both financial services organizations and regulators with transparency in how they manage and operate their cloud services; and ensuring their customers have the control and security of their data to meet their compliance obligations.

Accelerating the compliance journey

As a global cloud service provider, Microsoft has made significant investments in helping the financial services industry meet and manage its regulatory responsibilities and accelerate the compliance journey. Here are a few ways we are doing this.

• Regulator Engagement: We have engaged with regulators to educate them about our cloud services and, importantly, have a dialogue to understand what is important to them. This enables us to share our ongoing compliance work and understand and anticipate new regulations to ensure our customers can use our cloud services accordingly. The European Banking Authoritys recent guidance on outsourcing is just one example of the modernization of regulation to permit use of cloud computing that we think will help the industry transform. We think the dialogue is important to advance the needs of regulators and financial institutions alike.

• Financial Services Compliance Program: We developed a unique program that allows firms and regulators to deeply examine Microsoft cloud systems, services and processes. This assures banks and regulators that Microsoft has taken the proper steps to secure data and mitigate risk. This industry-leading program also serves as a peer community of leading banks to share input directly to Microsoft. We take that feedback, and improve our services and capabilities to meet the needs of our customers, globally.

• Built-In Compliance Capabilities: Microsofts cloud solutions are designed with regulatory requirements in mind. Our Trusted Cloud is based on four foundational principles: security, privacy, compliance and transparency. And we provide the latest security and compliance features within Microsoft Azure, Office 365 and Dynamics 365 with supporting tools like Compliance Manager and Secure Score ranking.

• Trusted Advisor. Our goal is to act as an ongoing advisor with proactive resources and support to keep up with ever-evolving security threats and industry standards. We share security risks when we identify them, provide visibility into our solution roadmap, and offer tools to help assess compliance risks. We also recently released new compliance checklists to help financial services understand specific regulatory requirements in more than 25 leading capital markets.

The opportunities ahead

As cloud adoption increases, we also see the cloud as a compliance-enabler. As banks look at sensitive and confidential data and workloads, like payments in core banking, there are scenarios where cloud can offer greater security and controls than in their legacy, on-premises environments.

Another opportunity is hybrid cloud computing. This is a valuable option for financial services who want to keep some business-critical applications and data on-premises in a private cloud, while taking advantage of new public cloud capabilities like large-scale databases or AI and machine learning. Microsoft Azure is designed to work across on-premises and cloud environments to give you the best of both worlds.

Learning from the leaders

As more banks turn to the cloud, there is a lot we can learn from those at the forefront. UBS, the worlds largest wealth manager, is leading the industry in public cloud adoption by using Microsoft Azure for global scale, security, to improve business agility, reduce costs and gain a competitive edge. Key to UBSs move to Azure was a significant focus on regulatory compliance.

Saxo Bank also aims to run its entire banking platform on Microsoft Cloud, thus providing an agile and highly secure environment for the bank to accelerate its digital journey and democratize financial services.

The future is in the trusted cloud

At Microsoft, were committed to earning and keeping the trust of our financial services customers, providing business cloud services based on principles of security, privacy and control, compliance and transparency; and a set of compliance offerings for those services, validated by independent auditing firms against national, regional and global financial industry requirements.

More than 80 percent of the worlds largest banks and 90 percent of the global systemically important financial institutions are Azure customers. This represents the highest bar for legal, compliance, security and acquisitions teams.

We look forward to helping financial services organizations in their cloud journey to achieve digital business transformation while meeting compliance changes along the way! To learn more about our Trusted Cloud and compliance work, visit the Microsoft Trust Center. And to learn more about Microsoft in Financial Services, visit our Financial Services page. You can also continue the conversation by connecting with me on LinkedIn.

The post Financial Services and the cloud: Accelerating the compliance journey appeared first on Microsoft Industry Blogs.

In the early days of financial technology (fintech), there was a somewhat distant relationship between fintech startups and traditional banks. Some spoke of how fintechs were going to disintermediate banks. Some banks, in turn, promoted the idea that consumers should cast a wary eye towards these less-regulated upstarts. Those notions have evolved, and integration of fintechs and traditional banks through open APIs is accelerating the digital transformation of the banking industry.

In the last few years, banks and fintechs realized that there are benefits of partnership, cooperation and collaboration:

• Fintechs gain built-in customer bases.
• Banks access the innovative digital products their customers now demand.

Overcoming the inertia of legacy systems

For banks managing legacy systemssometimes older and built for an analog ageit can be challenging to innovate and develop the digital payments products todays customers expect. In fact, a complex legacy IT environment is possibly the greatest barrier to a banks ability to drive digital transformation. The cost of replacing and updating those systems are the most significant obstacles to adopting new technologies. Thats where fintechs come in.

Open APIs and open banking

Thankfully, there are many ways for banks to quickly roll out innovative digital offerings without the costlyand potentially riskyreplacement of core IT systems. One approach that is gaining popularity is open banking, which includes using application programming interfaces (APIs) to connect banks systems with innovative third-party digital products offered by fintech companies. Regulatory statutes, such as the Payment Services Directive 2 (PSD2) in Europe, are driving adoption of open banking, and consumer demand is also spurring growth in other parts of the world.

Banks that jump ahead with open banking initiatives will enjoy a first-mover advantage, according to a recent study in the MIT Technology Review. In the U.S., forward-thinking banks have already embraced open APIs. Those that dont risk falling behind.

Innovators like Episode Six use the power of APIs for quick integration without overhauling existing IT infrastructures or investing in new systems altogether. Essentially, financial institutions become future-proofed by being able to easily integrate the best of whats already out there or investing in new systems altogether.

The Episode Six platform includes standard components that integrate with existing banking infrastructuresuch as ISO20022 and payment systemsmeaning that such features are readily available on the open API platform. And from a technical perspective, the solution offers the desired business capabilities using the most advanced technologies. For example, Episode Six sits on top of the Microsoft Azure cloud and leverages Azure Kubernetes Services and Azure Database for MySQL. The platform also uses best-in-breed cloud security technologies for authentication, network isolation, data encryption at rest and in-motion; keys are managed with the Azure Key Vault service. With its open API architecture, Episode Six clients can adapt their products to new market trends without interrupting service.

Azure services help banks become more nimble

Using its comprehensive set of APIs, Episode Six can deliver seamless integration to any bank in the world with ease. Any bank can call an APIa conceptually simple act. For the Microsoft Azure cloud, this simplicity is an important factor because it allows for quick deployments of the cloud technologies that banks need to achieve nimbleness. And compliance can be more easily automated and maintained with Azure technology.

For example, the responsive and scalable nature of Azure cloud services means that banks and payments processors can plan for seasonal peaks. Burst capacity can be provisioned on-demand and then de-provisioned once the peak is over.

Financial institutions also worry less about compliance headaches when using cloud services. Providers such as Microsoft Azure are regularly audited to validate compliance with regulatory and industry standards such as PCI DSS. By deploying in the Microsoft Azure cloud, significant infrastructure components and management services eliminate the requirement for the bank to do its own internal audit, or for regulators to independently assess these solutions. (Note however, that compliance is a shared responsibilitybanks must implement controls on internal systems to achieve and maintain compliance.)

Several banks are already benefitting from partnerships with innovative fintechs, such as the Mercantile Bank of Michigan, a $3.2 billion community bank that last year partnered with Abe.ai to use artificial intelligence to help customers budget better. Others have leveraged partnerships to improve small business lending and streamline corporate payments.

Recommended next steps

Visit the Azure marketplace (AppSource) and filter by the keyword Financial services, or search by an appropriate keyword to find partners who can accelerate your digital transformation.

Find out more about Episode Six by going to Redefining What is Possible.

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