Eversheds Digital Banking Seminar Obtaining the right technology 30 September 2015 Eve England Principal Associate

Eversheds LLP | −Why is obtaining the right technology important? −Digital platforms - investment and strategy −Facilitating innovation −Getting the contract right −Maintaining a competitive edge Overview

Eversheds LLP | −Institutions focus on Digital Banking in a customer focused manner −However, without the right technology and the right supply contracts, the end product may fail or be non-compliant −My session looks at obtaining the correct technology in the most efficient way −To avoid failure, we advocate a “holistic” approach between the Bank's innovators, procurement professions and regulatory and sourcing lawyers Why is this important? Gough, Partner

Eversheds LLP | The UK banking landscape is changing, and a far greater emphasis is being placed on mobile banking and a general move towards innovative customer engagement initiatives −Legacy systems A particular challenge for established banking institutions Consideration of existing IT infrastructure strategy Adapting old systems via change control or new cutting edge systems? A mixture of both? −New entrants Ability to consider innovative solutions as a starting platform Funding to invest in expensive technologies? Lack of established risk and compliance frameworks Digital platforms – investment and strategy

Eversheds LLP | It is important that financial institutions consider approaching IT strategy in an holistic manner −Innovators & tech teams What is the digital solution being sought? Is the technology relevant - market testing / customer focus groups What is the impact on existing models/procedures? Extent of work needed to implement? Expertise needed? −Sourcing professionals Costs to the business Engaging the operational and business teams early Choosing the best supplier Negotiation with more than one supplier Facilitating innovation

Eversheds LLP | −Legal & compliance teams Commercial contract specialists/technology lawyers Product teams (retail and commercial) Regulatory lawyers – can you provide the model within the relevant regulatory environment and within the financial institution’s risk appetite? −Using the right contract Waterfall v Agile Waterfall – platforms Agile - Apps Consider testing and implementation requirements Using multiple third party providers Do you need a systems integrator? Consider how the contract will be ultimately managed Facilitating innovation (cont’d)

Eversheds LLP | Once the internal approach has been confirmed, it is then necessary to ensure that your contract provides the necessary framework for delivering the relevant innovation. −Detail clearly what you expect from your supplier −Focus on how the project will be delivered and make the contract as practical as possible −Try to avoid change control costs and disputes later on −What level of implementation and testing is needed? −Consider assumptions and dependencies, although take care to avoid deadlock Getting the contract right

Eversheds LLP | −Encouraging good performance Consider the practical ways you can look to encourage a good working relationship with your supplier Service levels Take care when agreeing service levels Shift to 24/7 banking Instant functionality Gain shares Other innovative incentives? −Good governance throughout the contract term will be key Getting the contract right (cont’d)

Eversheds LLP | This section sets out some of the key contract provisions that will need to be included in any contract with your suppliers −Regulatory compliance Does the contractual framework allow you to be compliant from a regulatory perspective? Involving appropriate product teams –retail/commercial Are your risk teams comfortable with the document? Audit rights? −Does the supply involve a material outsourcing? Are the principles of SYSC 8 captured? Do you have sufficient control over the supplier? Getting the contract right (cont’d)

Eversheds LLP | − Protecting customer data Balance between the legal framework and delivering a good customer journey Future proof the provisions −Liability Have you included a robust and precise liability framework? Getting the contract right (cont’d)

Eversheds LLP | In the new digital era, maintaining a competitive edge remains a constant challenge. −Flexibility - Focus on ensuring that your contract has a sufficient degree of flexibility built into it Software updates Encouraging innovation throughout – product enhancement requirements Utilising change control procedures Specifying upfront how regulatory changes etc. will be managed and specify which party will be liable for the costs of implementation −Exclusivity & IPR If you are developing cutting edge systems, consider the need for periods of exclusivity. Will you want to own the IPR or will licencing provisions suffice? Maintaining a competitive edge

Eversheds LLP | No team is an island! Summary

Questions?

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