Brokerage firms and investment banks are subject to strict regulatory oversight and a host of legal requirements. This makes for a rather complex equation when it comes to risk management and IT governance. But things get even more complicated when you add mergers and acquisitions into the mix.
This complex nature leaves many business leaders wondering whether it’s even worthwhile to consider mergers and acquisitions as they refine their risk management and IT governance strategies. But make no mistake: there is much to be gained from appreciating the importance of IT governance in mergers and acquisitions for investment banks and brokerage firms. In doing so, you can gain a competitive and strategic advantage in your company’s IT and risk management plans.
What is IT Governance? What Does it Mean for Investment Banks and Brokerage Firms?
IT governance encompasses a broad scope, including everything from IT risk management to a company’s policies, protocols, and processes. At its most basic level, IT governance — or simply, ITG — is defined as a series of processes, protocols, and policies that are designed to achieve maximum efficiency within a company’s technology. In addition to efficiency, IT governance strives to promote and support an organization’s strategic and operational goals.
For brokerage firms, investment banks, and others within the financial sector, IT governance tasks span a number of areas, including — but not limited to — the following.
Creating an IT governance task force
that will oversee all aspects of the company’s technology and ensure that everything supports the organization’s operations and strategic objectives. The task force is also charged with performing periodic risk management evaluations, identifying risk factors and vulnerable regions of the IT infrastructure, and addressing unexpected events, such as security breaches and new regulatory requirements.
Evaluating, modifying, and developing new policies, processes, and protocols,
with the goal of minimizing risk and maximizing security levels. This includes reviews of data management policies, data storage, and retention practices, user permissions, and so on. Investment banks and brokerage firms, in particular, must pay special attention to regulatory requirements to avoid costly noncompliance fines and penalties.
Overseeing risk management initiatives that are related to the company’s IT.
This includes identifying new risk factors and vulnerabilities, in addition to developing response plans and overseeing the deployment of those measures. Again, brokerage firms, investment banks, and others in the financial space must give special consideration to regulatory compliance-related risk management issues.
Creating an emergency response plan and protocol for IT governance-related incidents
This can include responses to cybersecurity incidents such as hacks, data breaches and data theft incidents, viruses and malware infections, ransomware incidents, and network security breaches. This plan should also address the configuration of security monitoring and alerts/notifications which should automatically be sent out when anomalies and suspicious events are detected within the system. These alerts should include new regulatory burdens and system changes that affect the company’s regulatory compliance.
Financial institutions such as investment banks and brokerage firms are required to adhere to a wide variety of regulatory compliance requirements and as such, all of the organization’s IT governance discussions must address these issues. The fines and penalties for non-compliance can be significant. For instance, nearly a dozen major banks were recently fined a combined $1.8 billion dollars after they allegedly allowed employees to use instant messaging apps such as WhatsApp, iMessage, and Signal to communicate with clients. These communications must be retained and preserved to comply with record-keeping laws, but the apps in question did not allow for the proper retention of this messaging data. As a result, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) issued nearly $2 billion dollars in precedent-setting fines to these financial institutions. With hundreds of dollars in fines issued to each bank, it’s fair to say that these fines hold the potential to impact a company’s future, including its long-term profitability. This highlights the importance of addressing regulatory compliance as part of an organizations IT governance strategy.
How Are Mergers and Acquisitions Related to IT Governance?
A successful merger and acquisition requires a flexible IT infrastructure, with technology that allows for new integrations and ideally, the addition of new features and functionalities. The latter can be used to accommodate and/or support any new operational aspects that are associated with the newly-merged or newly-acquired business. To ensure success, a company’s IT governance strategy should include a protocol for developing new processes and overseeing training and deployment for those new processes. This positions a business to absorb another company’s operations in a more efficient, minimally-disruptive way.
Investment banks and brokerage firms are routinely involved in mergers and in the acquisition of other companies. And as with many other aspects of the financial sector’s business models, there is an inherent in-built element of risk that cannot ever be fully mitigated. In fact, the risk level is quite significant for mergers and acquisitions. For example, it’s not uncommon for a business owner to exaggerate — or even falsify — business data in an attempt to make a company look more appealing to a prospective investor who is considering a merger or acquisition. This underscores the importance of performing thorough investigations and vetting before entering into this sort of transaction.
A company’s processes and protocols surrounding mergers and acquisitions will have a major impact on how effectively they can mitigate some of the risks. IT governance enters the equation when two companies actually merge or a company seeks to absorb the IT resources of an acquired business. For example, in a merger or acquisition, an investment bank may seek to merge the customer data stores into a single database platform. This requires good data migration processes so as to avoid damaging or corrupting the company’s data stores.
Another potential problem area surrounds the integration of multiple third-party platforms and enterprise software platforms. The newly-acquired or newly-merged business will have a number of platforms that must be integrated with the existing platforms within the brokerage firm or investment bank. A solid integration strategy will need to be developed and deployed. In some cases, it may even be beneficial to pursue the development of a new enterprise software platform that suits the needs of the company and its new form. Whatever the case, this is all an important part of IT governance.
Positioning Your Brokerage Firm or Investment Bank to Succeed With Merger and Acquisitions
At iTech, we’ve tailored a variety of enterprise platforms to accommodate mergers and acquisitions in a way that minimizes any adverse impact on a company’s operations. Beyond this, our team has the experience required to develop customized enterprise solutions to drive success and improve IT governance. We believe in a collaborative approach to development, as the iTech team works with clients to gain a complete understanding of their goals, business strategy, and challenges — including those challenges that are arising from a merger or acquisition.
iTech’s team knows exactly what technology can bring maximum benefit to an organization and its operations. We invite you to reach out to the team at iTech today. Let’s begin a discussion about your merger and acquisition plan, your pain points, and how iTech’s talented developers can craft a customized solution to help your business in its efforts to go beyond surviving to thriving.