Formulate And Conduct Monetary Policy In Malaysia Information Technology Essay

The selected company for this paper is the Hongkong and Shanghai Banking Corporation. The organization is popularly known by its widely accepted acronym HSBC. To-date, this multi-national company is a giant financial conglomerate that operates from more than 7,500 offices spread across 87 countries world-wide with more than 330,000 employees (www.hsbc.com).

Briefly, the historical background of Hongkong and Shanghai Banking Corporation (HSBC) was that it was founded in 1865. Its formation was to cater to primarily for the China trade. In 1876, it opened its Singapore branch followed by the Penang branch in 1884. The main banking activities then during the turn of the century in the Straits Settlements were to cater for trading activities in China. As the British presence in the Malay states in the Malay Peninsular grew through tin mining and during the later stages through rubber cultivation as well as other commodity plantations such as cocoa, tobacco and spices, Hongkong bank grew larger as demand for banking support to the business communities grew (HSBC. It’s Malaysian Story, text by Douglas Wong, Editions Didier Millet, 2003).

The financial industry in Malaysia has demonstrated a vibrant development since its announcement to open up the industry for foreign participation via increased equity and to hold a major stake in insurance companies, investment banks and commercial banks. Amongst the foreign players that has made a big inroad into the financial industry of Malaysia is HSBC, Standard Chartered and Citibank. (www.chinapost.com). The industry is controlled by the central bank of Malaysia known as Bank Negara Malaysia (BNM). BNM formulates policies, sets out controls for the banking & lending activities in the country and implements the Banking & Financial Institutions Act 1989. Its main & primary functions are:-

Formulate and conduct monetary policy in Malaysia;

Issue currency in Malaysia;

Regulate and supervise financial institutions which are subject to the laws enforced by the Bank;

Provide oversight over money and foreign exchange markets;

Exercise oversight over payment systems;

Promote a sound, progressive and inclusive financial system;

Hold and manage the foreign reserves of Malaysia;

Promote an exchange rate regime consistent with the fundamentals of the economy; and

Act as financial adviser, banker and financial agent of the Government. (www.mida.gov.my)

The major competitors to HSBC in Malaysia comprises of the foreign banks in Malaysia such as Standard Chartered Bank, Citibank, OCBC Bank and UOB Bank. The local banks that competes with HSBC are larger in terms of branch network, customer accessibility, capitalization, systems, loan spread as well as human capital.

Part 2

The early era of modernization in the bank is through implementation of accounting machines in 1959 with the use of National Cash Register Corporation (NCR) Machine called NCR Class 32s for the general ledger and current accounts in Hongkong bank’s branches. The savings accounts were done using the NCR 42. The NCR 32 were later replaced by NCR Postronic machines in the larger branches in Malaya. The second phase of mechanization or early computerization in Hongkong bank started in 1976 through out to 1980. This phase involved the use of IBM mainframe such as IBM 360 which cost USD450,000 in 1977, Philips terminals, Racal modems and telecommunication provide by Telekon Malaysia. By 1988-89, the Philips banking terminal has been replaced by a Unisys system used by the HSBC group worldwide (HSBC. It’s Malaysian Story, text by Douglas Wong, Editions Didier Millet, 2003).

The Data Management and Storage system of HSBC are based mainly on its mainframe system that has been retained largely from its era of computerization in the 1976 era up until mid 1984/5. The mainframes are its key machines in storage of data and information which comprises of customer information, loan & advances, staff information including its compensation & payroll data. The Windows NT server is one HSBC’s key data management and storage system. Another system in HSBC’s data management and storage is its Windows 2000 SP4 server and Windows 2003 SP1 server. These three systems forms the core data management and storage for HSBC.

The advantages of these systems are their storage capacity that is large enough for HSBC’s customer information. The dependability of these systems has proven stable and dependable against unnecessary data losses. The IT Support teams constantly provide cumulative security update such as its Outlook Express. The flexibility of these three systems can be demonstrated in the series of pack and patches that was downloaded for the Windows 2000 SP4. Among those patches to address the system are:-

Vulnerability in the Web View to allow Remote Code Execution.

Vulnerability in HTML Help to allow Remote Code Execution.

Vulnerability in Remote Desktop Protocol could allow denial of service.

Vulnerability in the Microsift Data Access Components (MDAC) Function Could Allow Code Execution. (HSBC Intranet)

The ability of the server to accommodate the above patched identified from the list of Microsoft Service Pack and Patches for Windows 2000 SP4 demonstrated the flexibility of the server to take patches in the system. These are aimed to ensure the server remains stable to support the bank’s requirement in data management and storage. In addition to the data management, the operating systems platforms are based mainly on Microsoft Windows. (www.hsbc.com.my)

The bank placed high importance to ensure its operating systems are sound, dependable to its business needs, safeguard customer information, enables continuous product enhancement as well as maintaining employees’ information which are considered sensitive and crucial.

Policies on internet usage for HSBC are highly regulated. The bank’s policy on the usage of email and internet is regulated and the policies can be found in the bank’s intranet accessible by all staff. The usage of email and internet is based on conditions laid down in the bank’s group policies. Its usage is for business correspondences and is to be conducted in a business-like and professional manner. The use of email and use of external computer access over the internet is subject to the bank’s policies and Code of Conduct. (HSBC Intranet).

The networking and telecommunications aspect of HSBC is controlled and careful attention is given to the access to internal software and hardware of the organization. This manner of control is reflected in the organization’s LAN security where all software installation is authorized through formal procedures. This would include LAN administrator guide strictly enforced, service patches on latest Microsoft updates are monitored and using approved anti-virus software (inclusive of updates). In terms of controlling the organization’s network, strict password usage and control is enforced. This is evident in the organization’s policy on placing ownership and accountability on individual user of their password. This includes frequent changing of password every 60 days (HSBC Intranet).

In broad terms regarding consultants, system integrator and vendors, HSBC maintains strict regulations on outside equipment by consultants and vendors. In addition, the bank enforces strict controls on third party data transfer, maintenance of customer and staff personal data within the mainframe system and serves are not accessed by third parties such as external consultants and contract employees without proper clearance (HSBC Intranet/PC Security Guidelines). These strict controls are put in place to protect customer and staff data privacy as well as data security from being compromised by external or third parties that comes in contact with the bank’s systems or servers. In terms of the bank’s computer hardware platforms, these equipments are maintained through tight policy and guidelines that governs administration of the bank’s IBM servers, the computer hardware especially PCs and laptops used by the staff, comprising mainly of IBM machines (HSBC Intranet).

Part 3

This report will proceed to present the concept on cloud computing, outlining its key features, current trends, future developments and consider its benefits to business (making direct reference to banking) and the cost of cloud computing to HSBC.

Cloud computing comes into focus only when companies think about the IT needs/requirements. Companies started to explore ways to increase capacity or add capabilities on the go with business-as-usual operations without investing in new infrastructure, training new personnel, or licensing new software. Cloud computing encompasses any subscription-based or pay-per-use service that, in real time over the Internet, extends IT’s existing capabilities (www.infoworld.com) (Based on an article by Eric Knorr & Galen Gruman adapted from Infoworld).

Prior to the availability of cloud computing, the traditional business applications have been complicated and expensive. The amount and variety of hardware and software required to run these applications and systems are daunting. The organization requires a whole team of experts to install, configure, test, run, secure, and update them. When the organization begins to multiply this effort across dozens or hundreds of applications, it is easy to observe the reason why the biggest companies with the best IT departments are not getting the applications they require. Given this reality, the small and mid-sized businesses will obviously face even bigger challenges (www.salesforce.com).

While the concept of cloud computing was recognized to be spearheaded by Salesforce.com, there has been other companies that have dived into the business of providing CRM solutions in the form of ‘software-as-a-service’. A Google search produced several key service providers in cloud computing such as Gogrid, ORACLE, IBM, SAP cloud computing.com, vads.com and rimuhosting.com.

The published benefits of cloud computing are the ability of the concept to leverage on cost while providing customized options to the subscribers. The list of benefits provided by cloud computing given the fundamental infra structure of cloud computing is as follows:-

The level of Web-services integration has been proven. Cloud computing technology has demonstrated itself to be much easier and faster to integrate with the organization’s existing enterprise applications (both traditional software and cloud computing infrastructure-based), whether third-party or applications that has been developed internally by the organization.

Advanced service delivery. Cloud computing infrastructures offer greater scalability, complete disaster recovery, and demonstrated an impressive uptime figures.

Lack of requirement to install additional hardware or software: There is no requirement for additional hardware or software in a fully cloud computing infrastructure. The positive features of cloud computing technology is in its overall simplicity and it requires significantly fewer capital expenditure to set up and get the whole system running.

Faster and lower-risk deployment. The organization can set up and run the whole system much faster with a cloud computing infrastructure. It also saves the organization substantial expenses and allows employees/users to log into the new solution quickly. The cloud computing technology applications are live in a matter of weeks or months, even with extensive customization or integration included.

Support for deep customizations. Cloud computing infrastructure allows deep customization and application configuration and it also preserves all those customizations even during upgrades. In addition, cloud computing technology is ideal for application development to support the organization’s evolving needs.

Empowered business users. Cloud computing technology allows on-the-fly, point-and-click customization and report generation for business users. As a result, IT is not required to spend a large amount of time and resource making minor changes and running reports.

Automatic upgrades that don’t impact IT resources. Cloud computing infrastructures put an end to a huge IT dilemma: If the organization upgrades to the latest version of the application, the organization is required to spend time and resources to rebuild their customizations and integrations. Cloud computing technology doesn’t force an organization to decide between upgrading and preserving all its applications, because those customizations and integrations are automatically preserved during an upgrade.

Pre-built, pre-integrated apps for cloud computing technology. The involvement of more companies in providing cloud computing infrastructure and applications will be able to multiply and provide more applications in either pre-built or post-built requirement to suit clients’ requirement. (www.salesforce.com).

Malaysia’s IT infrastructure. The availability of better infrastructure compared to other countries in the region such as the availability of broadband indicates that the country is a suitable platform to embrace cloud computing with the assurance and support from the government. An example of this support is the entrance of Microsoft’s full range of cloud computing capabilities in Malaysia as well as other established parts in this region. (www.nst.com.my).

While the concept and published reports and opinions have advocated various benefits from cloud computing, there are obvious down side to the concept compared to the more established traditional business applications that are more supported by the applications provider.

One of the major online company that adopted cloud computing is Amazon.com. Recently, there have been technical problems and interruptions by the company starting on 21 April 2011. This has prompted industry analysts and observers to ask organizations to seriously reconsider relying on remote computers that are beyond their control. Matthew Eastwood, an analyst for the research firm IDC has called this incident involving Amazon.com as “a wake-up call for cloud computing”. The incident has started discussion on the concerns for cloud computing as such:-

The amount organizations are required to pay for backup and recovery services. This concern also covers other areas, including paying extra for data centers in different locations. That is because the companies that were apparently hit hardest by the Amazon interruption were start-ups that, analysts said, are focused on moving fast in pursuit of growth, and less apt to pay for extensive backup and recovery services. (www.nytimes.com).

The actual flexibility of cloud computing. While cloud computing has demonstrated its flexibility in terms of adaptability to organization’s requirement and cost, there is a real concern amongst industry analysts on the claim of actual infinite elasticity of cloud computing. Arising from the recent Amazon.com interruption, there are serious concern on the ability of cloud computing to provide stability beyond the security from the traditional business applications provider that has seen proven reliability. This will be severe for what the analysts are concern for larger industry such as the entertainment industry (http://cloudcomputing.sys-con.com). Taking this argument a step further, this report also raises the concern arising from the Amazon.com incident to the banking industry. Would HSBC depart from the major players in banking to embrace cloud computing given this latest discussion in the IT industry.

Part 4

In my analysis of the present structure of HSBC, the idea of adopting cloud computing needs to be pursued with a certain degree of caution and optimism. I am recommending the following options for your consideration in adopting cloud computing into the applications support, maintenance and storage for HSBC:-

Limited participation in the Virtual Private Cloud (VPC) by putting in the new applications via cloud computing whilst keeping the existing applications to be enhanced, supported and stored by the existing system. The bank will continue to work our vendors and system support providers to maintain the existing applications. This dual approach is aimed to venture quickly into cloud computing and at the same time in assuring senior management, Asia Pacific Group IT as well as the Global team on our prudence to continue maintain the existing system for our current applications. This recommendation is to maintain status quo in our level of customer service with any unexpected disruption to our clients arising from technical problems.

In addition, the VPC is relatively simple to implement and the cost of the subscription to SKALI Cloud Servers a minimal fee while having pre-build features which HSBC can use immediately. (www.skalicloud.com). This approach also eases up our GTLM (subsidiary providing IT support to HSBC) who is having attrition of IT personnel and simultaneously struggling to backfill the vacancies.

In considering the IT infrastructure of our competitors, our proposed investment into cloud computing would be timely to ease off more capital investment into applications management and storage. The savings can be channeled to other IT requirement such as upgrade of our servers and other interface channel to the front end to give better support to our users. This will enable faster turnaround time and increase productivity of backroom / support staff and also better customer service for our sales & service staff to our clients.

Our overall business strategy under the Medium Term Outlook (MTO) three year plan from 2010 to 2012 emphasize the importance of improving productivity and cost savings to complement the bigger business revenue aim for the bank. Under this plan, the proposed adoption of cloud computing is to enable HSBC to have a quick support for its application support, minimize over dependence on staff, service providers and vendors.

Many banks have spent time and money building an internal infrastructure. Such large infrastructure investment makes it difficult to cost justify moving for such infrastructure to be moved to an outside provider. There may be long-term savings but in the short-term, the difficulty is justifying the large investment into a cloud computing arrangement.

In addition, moving the whole application systems from internal to eternal source via a cloud-based platform has a certain cost in itself which makes it even less attractive and even more difficult to justify. (http://thefinanser.co.uk)

Issues with regulators. A recent report appearing in the UK Financier highlighted that Microsoft is often asked about Security by share holders as well as regulators. Companies would naturally due to their interest in protecting data privacy, will be determined to know how organizations protect their data. Among the questions posed to the organizations is the location of the cloud, the standards used by the organization in selecting the cloud that is located remotely away from the host country. In this respect, Microsoft is heavily geared towards security and is one of the largest firms in the development space in this area.

Some issues do arise however with regulators in key markets, particularly in finance. For example, in Turkey, they regulate that data must be held on bank premises. That’s hard to overcome but is a key reason Microsoft continues to provide on premise solutions banks can implement while regulations catch up. (http://thefinanser.co.uk)

Security of the information maintained within the cloud that is located away from the bank. In view that the cloud is not part of the bank’s organization or a subsidiary where the bank has partial or majority ownership, there remain questions on the control the bank has over the information, data or applications stored in the cloud (Interview with Mr Peter Ng, Manager IT Development/Support Office Automation on 12 April 2011). In addition, there is a provision within the Banking And Financial Institutions Act 1989 (BAFIA) that prohibits any director, employee or agent appointed by the bank who has access to the bank’s information made available such information to any other person or parties (S.97 of the Banking And Financial Institutions Act 1989). The concern raised by Mr Peter Ng is amplified by the fact that bank’s information, data or applications stored in the cloud outside the management purview of the bank. In view that the facility and commercial ownership of the cloud does not come under the definition of an agent appointed by the bank, there is no locus standi on the part of the cloud being accountable for any legal action that can be taken in the event there is a breach of S.97 of BAFIA.

Section 97 of BAFIA states as follows:-

97.   (1)   No director or officer of any licensed institution or of any external bureau established, or any agent appointed, by the licensed institution to undertake any part of its business, whether during his tenure of office, or during his employment, or thereafter, and no person who for any reason, has by any means access to any record, book, register, correspondence, or other document whatsoever, or material, relating to the affairs or, in particular, the account, of any particular customer of the institution, shall give, produce, divulge, reveal, publish or otherwise disclose, to any person, or make a record for any person, of any information or document whatsoever relating to the affairs or account of such customer. (Banking and Financial Institutions Act 1989).

Part 5

In summary, HSBC has a complex IT system that has been build over the years of our existence in Malaysia since the computerization of our banking system. The availability of cloud computing as an alternative in our on-going challenges in application management should be carefully considered in terms of expanding our IT capabilities to move into bigger areas of banking. This will provide HSBC with the opportunity to have better flexibility in managing our overall applications system to be able to provide better support to our users. This will in turn, enable our staff to provide better customer service and engagement.

The adoption of cloud computing by the bank can be implemented with the following strategies:-

Adopting a hybrid cloud where major vendors such as IBM, ORACLE and Hewlett Packard offers hybrid delivery with their existing technology to manage complexity of HSBC’s diverse application systems that caters to different business groups where different applications for business segments such as Personal Financial Services, Commercial Banking, Treasury and Global Banking are different. The dedicated servers and applications can be better managed through public cloud (for lower cost applications storage with medium or low risks) and managed dedicated servers (for higher risks applications and data) that can be managed in partnership with the major vendor. This combined approach mitigates risks portfolio for the bank in terms of spreading evenly its storage in cloud computing where external parties and vendors cannot be fully controlled compared to internally managed servers and storage facilities (Interview with Mr Lim Wei Hup, Senior Manager IT Operations/Support conducted on 14 April 2011).

Co-venturing into cloud computing by adopting a strategic partner to mitigate risks as well as leverage on common areas and different technical expertise to harness effective teamwork for selecting external applications from various clouds. An example of a recent tie-up and cooperation in the financial industry is the venture of Polaris Software Lab, one of the leading global financial technology companies announced a strategic investment in IdenTrust, a global financial institution. IdenTrust is one of the premier service providers of digital identity authentication services to several key banks such as Citibank, Bank of America, Deutsche, HSBC and even Barclays Bank. (www.siliconindia.com).

The concern of being the first bank in Malaysia to embrace cloud computing need not arise as the government has provided ample support, key service provider such as Telekom Malaysia has been upgrading its broadband services and the availability of fiber optic infrastructure will ensure adequate bandwidth and speed. HSBC has always been a pioneer in various aspect in banking be it technology, products and services and even bringing environmental issues into part of its global commitments. With our rich history and forward optimism, venturing into cloud computing is an option management seriously need to consider in view our future growth strategy.