Lenders Confront Increasing Litigation, Regulation Challenges

MBA (10/1/2008 ) Palaparty, Vijay
Financial services institutions’ ability to confront increasing litigation and regulation correlates with their information management strategies. Preemptive strategies to meet requests—versus reactive—will help institutions better prepare in an evolving, challenging environment, analysts say.
Robert Brunner, senior managing director at FTI Consulting, Baltimore, said activity in financial markets has been driving turmoil, which in turn magnifies the amount of government and regulatory interest in institutions. “It’s happening at an unprecedented level and regulatory agencies are very active, creating unique challenges,” he said in the webinar sponsored by Attenex Corp ., Seattle.

The information being sought now from regulators, counterparties or adverse parties, litigation and law enforcement is broad in scope, Brunner said. “Finding pieces of data is more complex than it was,” he said. “Information in systems is also complex and requires a much more thoughtful approach. The volume of data also presents challenges as there are billions of transactions behind these information systems that require collection, analysis and production. The scale has become very large.”

Barclay Blair, director of IT consulting practice at Kahn Consulting, Highland Park, Ill., said business has a different view of information than IT. “We need mechanisms to identify what has value and spend time and money on that,” he said. “There is a need to create an environment that is ‘litigation ready’—to retain schedule, records and information management policy, e-communications policy, legal hold policy, support procedures, governance around information management and e-discovery liaison.”

Brunner said queries are not made on specific systems or data inventories, but on enterprise-level “crises” that span the entire institution. “Companies do not have a good handle on the information, data and systems they have," he said.

With increasing activity in mergers and acquisitions, Brunner said companies also face challenges in combining systems. “Companies are consolidating but only in portions,” he said. “Disintegration results from the systems, creating challenges to protect and produce data. Unwinding is a complex process.”

Brunner said context of investigation also drives what institutions are expected to produce. He said that whole systems dedicated toward producing such data are necessary among institutions. "Dedicated, special-purpose data warehouses may also be required," he said.

“It’s a more sophisticated environment now where all parties know more,” Brunner said. “The signs of the landscape show that they are all more adept to using electronic information.” He also said that more and more, financial services institutions are not able to say that information and data management is costly.

Blair suggested that institutions not dispose of information; consider legal impacts of making changes to environments; close the gap between IT and legal understanding of information; align IT and legal departments; revisit approaches to information management; and start with a solid foundation.

“What makes financial services institutions vulnerable are the stakes,” Brunner said. “They face three problems—multi-billion dollar situations that are end-of-life experiences or events if not handled appropriately. Second, it’s the urgency of the situations. We are dealing with banner headline issues and these are top priorities for regulators. Third, there is market confidence risk that can lead to downfall of a company. The erosion of confidence by the marketplace can lead to collapse of an organization.”