Jim Freis from CRINData talks with John Maher about the word “critical” in relation to the banking industry. He explains which priorities are critical to banks, and he talks about why banks need to be well prepared for critical incidents.
Transcript
John Maher: Hi, I’m John Maher, and I’m here today with Jim Freis, co-founder of CRINData, a fintech startup, supporting financial institutions and their service providers. Today, our topic is CRINData’s focus on financial institution’s critical activities. Welcome Jim.
Jim Freis: Hi, John. Glad to be here.
What Does Critical Mean in This Context?
John: Great. So Jim, obviously with CRINData’s name, you’ve incorporated the word critical right into that. So can you explain to me a little bit about the choice of that term and the focus for the company.
Jim: To understand what we mean by critical, think about prioritization. It’s about getting to what really matters most to management to your customers, to the bottom line. So if a financial institution is thinking about what activities are critical to the delivery of services to its customers, then it’s also an activity that you should take into consideration for serious risk management.
So first you look at the relationships that you have, on who do you depend on in order to carry out an activity. If you have this dependency, and this is an activity that matters to your bottom line, then this is a critical activity.
Second way that we talk about critical is when you have a problem. If it’s a relationship that’s so significant that you’ve categorized it as critical, you would want to know about any disruption right away. You need to anticipate those types of incidents and proactively plan to be able to mitigate risks. So while the platform that we’ve set up an offer through CRINData can be applied broadly in terms of your risk management and your service providers, we add the most value by keeping financial institutions and service providers focused on the activities and the relationships that matter most to you. And those are the critical ones.
What Activities Are Critical to Financial Institutions?
John: Right, and so talk a little bit more about that and what types of activities are considered critical to a financial institution in particular?
Jim: The range of what can be critical is broad and is actually growing quite quickly. The reason is that as financial institutions continue to evolve, they’re relying more and more on external service providers. This is obvious in the IT area, we think about going increasingly to cloud providers, both for services, platforms, where you store your data, things that traditionally were in-house, but also the delivery of individual products and services. So every institution is unique in what mix is critical for it. But to give you some more detailed examples.
First, a bank’s core processing software. That’s what literally maintains the debits and the credits that define the bank’s intermediation activities.
Second, payment providers. It’s what is essential for you to move money between your bank and other parties or their financial institutions.
Another category, monitoring software, whether it’s for risk management, credit risk, overdrafts, et cetera. Whether it’s for compliance monitoring, unusual activity, fraud management. Again, we see financial institutions increasingly relying on external parties to manage risks and meet compliance obligations.
It could also be the way that you interact with your customers. The interface through which customers come online to your bank could be outsourced or reliant on a range of external service providers, without which you have no client or customer interaction.
Another example and a good way to understand that banks are different is white labeling products or services. Many institutions increasingly will offer ancillary services to their customers, additional savings, investment, insurance type products. Whether that service is critical to your institution, again, really comes back to, is it nice to have an additional or kind of a backup service that a few customers use? Or is it something that really makes a difference to your bottom line and helps define why customers rely on you? That’s what you need to think about when looking at critical relationships. How does it impact your institution?
What Does CRINData Do?
John: Can you talk a little bit more about CRINData and what it is that you do, and also do banks and financial institutions need to do anything or go through exercises in order to prepare to use that CRINData platform?
Jim: That’s an important starting point because banks already have long standing obligations to identify their critical relationships. But it is an aspect of a pain point for banks because it’s very manual processes and very much on a bilateral focus. So we have the ability to build upon the existing framework that banks have gathered, or the data that they’ve gathered over time, but bring them into our platform that rests upon those pre-existing processes and makes them much more efficient and helps management keep focus on these most important activities.
The largest US banks and foreign banks active in the United States have had to incorporate the notion of critical services and activities into their resolution planning requirements. So they literally take that chapter out of their playbook to see which ones they want to get the benefit of this system. And it’s also the case that the bank’s board of directors again, have for decades been required as a regulatory matter to approve the adoption of critical service providers before contracts are signed.
So again, banks should have already been thinking about this, but it’s a pain point to do this bilaterally for these relationships, which again are so important, so significant, so critical from a regulatory matter. The regulators are now upping the ante in telling banks if they want the banks to place additional emphasis on their due diligence and ongoing monitoring of these relationships. And this is exactly the service which the CRINData platform delivers.
What Type of Critical Incidents Happen in the Banking Industry?
John: All right, great. And you’ve talked a little bit about critical activities and what some of those activities are that financial institutions engage in and subcontractors that they work with. Things like that. Tell me a little bit more about the critical incidents that can occur and the results that can happen from those critical incidents.
Jim: Understanding the critical relationships in the activities is really the foundation. The reason why you have that foundation is if there is a disruption, if there is an incident you need to be able to promptly address that incident. And in the context of an incident, you only can address it if you’re sharing information with the appropriate communication of risks, with the relevant service providers, and also the prompt reporting under regulatory requirements.
When a disruption occurs, it’s too late to ask around and try to figure out what we need to do next. CRINData is trying to prepare financial institutions for when this event happens. Not if, because it’s only a matter of time, and it’s only a question of exposure to the number of institutions. So when this event happens is not the time to ask, where’s my plan? What’s my plan? It’s the time to execute.
And this is where we help the financial institutions again, focus and be ready to adapt when an incident occurs. That’s the type of thing that should be critical to any executive management, knowing that they’re protecting their institution and their customers.
Contact CRINData to Learn More
John: All right. Well, that’s really great information Jim. Thanks again for speaking with me today.
Jim: My pleasure John.
John: And for more information, you can visit the website at crindata.com. That’s C-R-I-N-data.com.
