The CFO role in financial institutions has always been pivotal. But as the industry evolves and technology and data become increasingly critical to operations, CFOs have taken the lead in driving industry transformation, and technology is the vehicle they’re using for change. For the modern bank CFO who is embracing new strategy and performance responsibilities and addressing changes wrought by regulations, technology innovation, and political or market uncertainties, connected planning technology is an indispensable ally.
Regulatory changes roil the industry
Banking is likely the most heavily regulated industry, and the rules are in constant flux. CFOs must monitor the regulatory landscape continuously in addition to business-as-usual finance activities and respond to changes by improving finance and risk alignment. To support growth strategies and address emerging risks, they need to integrate risk drivers and indicators into financial performance management, so they can balance investment and compliance decisions.
The implementation of FASB’s new Current Expected Credit Loss (CECL) model in the US illustrates the need to achieve this balance. It requires CFOs to adopt a forward-looking approach to estimate expected credit losses and use a richer dataset to support CECL models. The new regulatory framework will draw more intense scrutiny of the assumptions that support CECL estimates and greater attention to data availability and reliability. Similar considerations also apply to the introduction of IFRS9 rules.
From a technology perspective, these accounting rules require advanced scenario-modelling capabilities to address all the dimensions, sets of variables and assumptions that support the calculations. Collaboration between finance, risk and regulatory teams and systems is also essential to ensure proper data reconciliation, process documentation and control. From a recent survey conducted by Anaplan across 50 retail banks around the world, better reconciliation between finance and risk systems is seen as a high priority by 87% of the respondents. Ultimately, the implementation of CECL or IFRS9 models drives the need for more automated processes to collect, control, calculate and forecast credit losses.
Technology disrupts the competitive landscape
Technology advances have seriously disrupted the banking industry, and financial institutions must respond to factors like the fierce competition created by non-regulated entrants (fintech, shadow banks, etc.) setting new customer expectations. 80% of the respondents to the survey quoted the changing customer demands as their most critical business challenge to solve.
Banks must seize new opportunities created by automated processes that lead to faster and better customer service as well as operational efficiencies. And API-based open banking tools allow them to leverage third-party innovation to improve customer satisfaction.
These significant technology improvements weigh on the banks’ performance management strategy. Fast digitalisation of the retail activities drives branch restructuring and the performance of the lines of business and products needs to be monitored more closely to ensure banks keep investing in the areas where they maximise returns.
An agile response to this changing landscape requires flexible data models that enable CFOs to effectively manage these distribution channel changes and adapt resources to demand for the retail side of the business. CFOs need the capability to conduct multi-dimensional analyses and rely on a powerful allocation engine to drill down into large volumes of data and gain insights on profitability.
Political and market factors multiply uncertainties
CFOs must also manage political and market changes successfully, and they’ll need advanced technology tools to handle issues like Brexit, deregulation and ring-fencing. To prepare for Brexit, banks are considering options like relocating parts of the business outside the UK. To make the right decisions, they must be able to accurately assess variables like the regulatory landscape, exchange rates, staff relocation and tax implications. CFOs will be looking at various assumptions for each of these variables to measure the impacts on the bank’s business.
Ring-fencing in the UK and its potential to spread to the US raise multiple questions about the scope of the project, the level of capital requirements after ring-fencing and the effect on foreign banking activities. To handle ring-fencing projects confidently, CFOs need to be able to conduct intense scenario-based modelling and forecasting to align the bank’s ring-fencing programme with its corporate strategy and the regulator’s expectations.
To manage these political and market uncertainties effectively, CFOs need scalable and highly collaborative data models that enable them to pull information and assumptions in from diverse bank functions. They will also rely on agile, driver-based scenario planning and modelling capabilities to adapt multiple scenarios to the changes in assumptions and anticipate business impact in advance.
Technology to the rescue
Today, bank CFOs play a more prominent role in strategy and decision-making. Accounting, financial and regulatory reporting, and tax compliance remain central to their function, but CFO’s responsibilities have expanded to include strategic planning and performance management. To handle these responsibilities effectively, CFOs require technology solutions that enable them to combine performance data from the past with forward-looking, scenario-based information, so they can manage a volatile and disrupted future.
An end-to-end connected planning platform is needed to enable real-time access to information across business units and facilitate timely and informed decision-making. Such an approach allows CFOs to gather all finance, risk and regulatory data into a single environment for planning, forecasting and reporting. Connected planning also eliminates silos and creates a single version of the truth for all stakeholders. In this way, CFOs can effectively manage performance and facilitate collaboration across the enterprise.
As the banking industry evolves, CFOs must embrace their role as agents of transformation. Those who leverage automation, machine learning and connected planning technology can learn from the past, more accurately foresee the future and enable faster, better business decisions across the bank. By driving change and deploying enabling technology, CFOs can ensure their financial institutions not only remain stable but thrive and grow in the years ahead.
Henri Wajsblat, Head of Financial Services, Anaplan