In-Depth

IBM Touts New Compliance Offering for Financial Institutions

Though the Basel II Capital Accord won't become law until early 2007, some vendors already pushing Basel II-centric solutions for a very important reason: customer history.

• By Stephen Swoyer
• 03/17/2004

If the Basel II Capital Accord isn’t slated to go into effect until early 2007, why are some vendors pushing Basel II-centric solutions today?

Basel II requires all banks with international operations to adopt consistent risk-management practices for tracking and publicly reporting potential operational, credit, or market risk.

So why the influx of Basel II solutions and services from BI stalwarts such as Ascential Software Corp., DataMirror Corp., and even IBM Corp.?

There’s a simple explanation, says Jeff Jones, director of strategy for data management with IBM. “This stuff kicks in in 2007, but it turns out that one of the requirements is that you have to have three prior years of customer and transactional data on hand to comply,” Jones explains.

BI vendors are always quick to sniff out potentially lucrative profits, and chances are that the market for Basel II products and services will be more lucrative than most: Over the next two years, for example, UK-based consultancy Datamonitor estimates that banks in the EU will spend around $4 billion on Basel II-compliant software and services.

With this in mind, IBM yesterday unveiled a new Basel II compliance offering, called, appropriately enough, “IBM Risk and Compliance—Basel II.” Big Blue’s new solution is built on top of its “Banking Data Warehouse Architecture,” which Jones positions as less of a product offering per se than a reference architecture for financial institutions.

In this regard, he argues, IBM’s long-standing involvement with the financial services industry—primarily through its Business Consulting Services (BCS) arm—gives it industry-specific expertise. “The Banking Data Warehouse Architecture is not a new product. It’s not version 1.0—it’s an architecture where we have a lot of industry expertise already built into it,” he explains.

Jones says the Banking Data Warehouse Architecture is flexible enough to accommodate a customer’s existing data repository, so there’s no requirement that customers deploy Big Blue’s DB2 database anywhere in the mix. “This is not a rip-and-replace offering. This is something we’ve built with the eye that you would weave this in very pragmatically,” he says. “We are proposing DB2 Data Warehouse Edition and software around it to help you build and manage a warehouse, and we’d love you to pieces if you decided to use it, but we do not require it.”

Most Basel II efforts will require integration between heterogeneous data sources—a practice commonly known as enterprise information integration (EII)—but Jones says that customers aren’t required to deploy IBM’s DB2 Information Integrator, an EII tool. “Unless you want to begin building point-to-point bridges, then, yes, you’d need DB2 Information Integrator,” he concedes. “But the degree to which you’ve already tackled integration on your own is the degree to which DB2 Information Integrator will be valuable to you. So if you’ve already started [to integrate disparate data sources], you probably won’t need it.”

Big Blue proposes DB2 OLAP Server—an OEM-ed version of Essbase from Hyperion Solutions Corp.—for the analytics portion of its Basel II compliance solution. Once again, says Jones, there’s no requirement that customers use DB2 OLAP Server, however. “The entire offering is open for third-party business intelligence tools to plug into. What we’re trying to say is you can basically use your favorite analytic tools in this environment."

In addition to DB2 and DB2 Information Integrator, IBM pitches its eServer pSeries and IBM TotalStorage Enterprise Storage Servers as part of the offering.

Given the prescriptive nature of the Banking Data Warehouse Architecture, BCS—which IBM acquired two years ago from the former PricewaterhouseCoopers—will play a big role in enabling the new offering. “We have quite a devotion to the banking industry here. We’re talking more than 100 consultants who have expertise in risk analysis in the banking environment,” Jones explains.

IBM supports working implementations of the Banking Data Warehouse Architecture in test laboratories in both the Silicon Valley and San Mateo, Calif. “At the Silicon Valley Lab where I’m located, we’ve established a Bank Data Warehouse that follows this architecture. It’s a 4 TB system. It has recorded more than a million bank records, and covers a seven year period over the life of a bank, so you can come in and use it as a proof of concept,” Jones concludes.

Big Blue has also lined up at least one vendor partner, Ascential, which announced that its Ascential Enterprise Integration Suite supports IBM's Risk and Compliance—Basel II offering. Big Blue includes Ascential's ETL and data integration technologies in the offering's reference architecture, for example, and Ascential says that its Enterprise Integration Suite can support activities such as gap analysis, automated source system profiling, data quality, data transformation, and parallel processing, along with a data audit trail.