DTCC Connection

Mar 01, 2012 • DTCC Connection

How DTCC Balances Innovation and Risk

by Helen Cunningham


With DTCC highly attuned to the industry's needs for creative, cost-effective solutions that address the new regulatory environment and changing economics in the financial sector, the company's focus on innovation has moved center stage, according to Michael Bodson, DTCC's COO.


DTCC's approach to innovation relies on a rigorous framework that nurtures new ideas, while ensuring all proposals are thoroughly analyzed up front for risk and cost factors. This methodology facilitates a steady pipeline of new services, product extensions and enhancements, while protecting DTCC and the industry from systemic and other risks they could pose.


As the industry's infrastructure, DTCC must maintain the highest standards for reliability and soundness, a mandate that makes it essential for the company to approach innovation with a finely tuned risk filter, according to Bodson. "To ensure we strike the right balance between innovation and risk, we designed a rigorous review process that supports promising new ideas, while thoroughly vetting them for any risks they may introduce to DTCC, its customers and the financial system."


Structure mitigates risk

DTCC's framework for new initiatives is drum-tight and managed in such a way that it streamlines the delivery of new, risk-managed services, while providing sound governance for their development.


Ideas move through a five-stage process from concept to launch, with reviews occurring at each stage. "Our evaluation process identifies the potential risks posed by any new initiative early on," said Rachel Tyler, DTCC vice president, who heads the New Initiatives Office. "That way, we build in the proper risk controls sooner rather than later, which keeps projects moving smoothly through the development lifecycle."


The reviews are conducted by the New Initiatives Committee, which consists of senior executives from 17 areas of the company, including risk, finance, information security and compliance. Drawing on its cross-functional expertise and knowledge of the industry, the committee evaluates all projects in the DTCC pipeline to ensure they have a sound business case, are fully vetted and meet the criteria for each stage of development. When appropriate, this group refers initiatives to other DTCC management committees, the Board of Directors or other governance bodies for further evaluation.


"The New Initiatives Committee creates an open forum to discuss the merits, requirements and market demand for all projects, and to ensure they meet our standards for risk and investment," said Tyler, who noted that the review process is incremental. "At each stage of development, the committee determines whether the initiative has sufficiently resolved any risk issues before authorizing it to proceed to the next level," she said. "The projects remain on the committee's radar screen right up through rollout."


Structure supports ideas

On the innovation side of the equation, the new initiatives process gives DTCC's business people a clear understanding of how to propose product ideas and work them through the system, which can be complex. The standardized methodology, guidelines and templates simplify their work, and keep them on the right track.


"We give people the information and support they need to propose and advance new initiatives," said Tyler. "We work with them to put together their materials and prepare for the committee reviews, and we offer guidance on the committee's expectations.


While the preparation can be intensive, it ensures the bases are covered before each review. "The process helps the business people evaluate their proposals from many perspectives, which is critical in today's regulatory environment," said Tyler. "In particular, it gets them focused on their initiative's risk profile right up front."


The committee frequently adds value to the proposals with insights the business may have overlooked, according to Tyler. In addition, from its central vantage point overseeing all the company's new initiatives, the committee may see similarities with other proposals that can be leveraged to advance or enhance a project.


No surprises

DTCC's new initiatives framework brings a high degree of transparency to the innovation side of the company's business.


"Our approach to new initiatives ensures our senior management, Board, customers and regulators fully understand the risks, benefits, required investments and timing of any new initiative DTCC undertakes," said Bodson. "That degree of openness is critical in today's business environment."@


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