“Hindsight is an exact science” the saying goes. Nothing is more true in the turmoil that we’ve seen in the financial markets in the past few weeks. Taking “toxic” financial assets and turning them into derivative investment assets seem to be the root cause of the current financial crisis. Major players in that market, for example Lehman Bros., collapsed and the performance in that segment in the market lead to overall panic that now cripples financial institutions that were not even involved in these “toxic” assets. “Toxic assets” is a new term to me as we always just described it as the outcome of a bad investment deal or decision. No one has offered to bail out my toxic assets, but I suppose mine doesn’t impact the world economy as the current situation that we face.
The financial services industry is probably the most regulated in the world, and still they got it wrong. There are rules and regulations to manage anything and everything but it seems that the business rules weren’t “integrated” with the business processes. Legislation and regulation worked in isolation from the operational processes that manage those businesses. It was possible to design and launch investment products that sold the financial risk as an opportunity and it was able to circumvent the rules that were in place for conventional products.
South Africa’s exposure to the financial crisis was limited by a number of factors but the introduction of the National Credit Act in 2007 was probably one of the biggest. Instead of creating products that would make it possible to obtain credit beyond the creditworthiness of an individual, the NCA forced financial institutions to implement more comprehensive and stricter business rules. This limits the “toxic” assets in South Africa. Asian banks seem to have their business rules in place and also had limited exposure to the “toxic” assets. Australia, on the other hand, allowed a “No docs” mortgage loan where individuals could borrow money with a 30% deposit and proof of income. Very slack business rules.
I am pretty sure that we will see a renewed interested in improved integration of a new set of business rules into the new product development process of financial institutions across the world. Sustainable business performance can only be achieved through appropriate and agile business rules integrated with appropriate and agile business process.
Filed under: Performance Management
