Business Process Automation in

Business Process Automation in

Selyugina Anna

financial services

Dissertation report presented as a partial requirement for

obtaining the Master’s degree in Information Management

ii NOVA Information Management School

Instituto Superior de Estatística e Gestão de Informação Universidade Nova de Lisboa

BUSINESS PROCESS AUTOMATION IN FINANCIAL SERVICES

by

Selyugina Anna

Dissertation presented as partial requirement for obtaining the Master’s degree in Information Management, with a specialization in Information Systems and Technologies Management

Advisor: Vítor Santos

2022 November

iii

ABSTRACT

Process automation has become the main trend in corporate development strategy. In the competitive finance market, automation of business processes is a necessary step that is required to succeed and brings the most profit in the modern day. This paper illustrates how business process management can help to solve the problem of workflow process automation in the financial industry. The research is conducted by design science research methodology, and the result is presented in the form of a framework.

This framework describes the steps of process automation applicable in the financial sector. Each step introduces a new piece of software streamlining a certain aspect of the original workflow. An overview of the existing available solutions will be provided in the paper for the benefit of further researchers and implementers. As a validation of this theory the developed framework is applied to a part of the regulatory reporting process in a European bank. Such application illustrates how the company can benefit from process automation and how software tools presented on the market can help with it.

KEYWORDS

Business Process Management, Workflow automation, Regulatory reporting

iv

INDEX

1. INTRODUCTION ... 1

1.1BACKGROUND ... 1

1.2MOTIVATION ... 2

1.3OBJECTIVES OF RESEARCH ... 2

2. LITERATURE REVIEW ... 3

2.1FINANCIAL SERVICES ... 3

2.1.1. Regulatory reporting concept ... 3

2.1.2. Challenges in regulatory reporting ... 5

2.1.3. Unified report submission format ... 7

2.1.4. Tools and Technologies ... 7

2.2BUSINESS PROCESS MANAGEMENT ... 12

2.2.1. Business Process Management Concept ... 12

2.2.2. BPM Lifecycle... 13

2.2.3. Process Modelling ... 15

2.2.4. BPMN ... 16

2.2.5. Business Process Automation ... 19

2.3WORKFLOW AUTOMATION ... 25

2.3.1. Workflow automation concept ... 25

2.3.2. Workflow Automation Architecture ... 28

2.3.3. Automation in regulatory reporting ... 30

2.4EMERGING AND CURRENT TECHNOLOGIES IN FINANCIAL SERVICES ... 32

2.4.1. Artificial Intelligence ... 33

2.4.2. Robotic Process Automation ... 34

3. METHODOLOGY ... 35

3.1RESEARCH METHODOLOGY ... 35

3.2RESEARCH STRATEGY ... 39

3.3SCOPE AND LIMITATIONS ... 40

4. BUSINESS PROCESS WORKFLOW AUTOMATION FRAMEWORK ... 41

4.1FRAMEWORK IMPLEMENTATION ... 43

4.1.1. Business process management level ... 45

4.1.2. Software and hardware level ... 47

4.1.3. Financial reporting level ... Error! Bookmark not defined. 4.1.4. Analysis level ... 51

4.1.5. Usability level ... 51

5. FRAMEWORK VALIDATION ... 53

5.1.1. Process Modelling ... 53

5.1.2. Data processing ... 55

v

5.1.3. Financial module ... 57

5.1.4. Improving usability ... 59

6. CONCLUSION ... 62

BIBLIOGRAPHY ... 64

vi

LIST OF FIGURES

Figure 1: FINREP and COREP regulatory reporting data structure ...5

Figure 2: Process Lifecycle ... 13

Figure 3 BPM lifecycle ... 27

Figure 4 Workflow Reference Architecture ... 29

Figure 5: Camunda arcitecture ... 30

Figure 6 COREP data flow ... 32

Figure 7: DSR Knowledge Application Framework ... 36

Figure 8: DSR methodology ... 39

Figure 9: Regulatory Reporting process automation framework ... 41

Figure 10: Regulatory Reporting process, BPMN diagram ... 44

Figure 11: Process automation framework step 1 ... 46

Figure 12: Process automation framework, step 2 ... 48

Figure 13: Process automation framework, step 3 ... 50

Figure 14: Framework validation, COREP process model ... 54

Figure 15: Framework validation, data ingestion ... 56

Figure 16: Framework validation, financial module ... 58

Figure 17: Framework validation, usability improvement ... 60

vii

LIST OF TABLES

Table 1: Automation for financial units ...8 Table 2: Regulatory Reporting Software ... 10 Table 3: BPM Systems ... 23

viii

LIST OF ABBREVIATIONS AND ACRONYMS

AI Artificial intelligence

BCBS Basel Committee on Banking Supervision BPM Business process management

BPA Business process automation

BPMN Business process modeling notation BPMS Business Process Management System CCAR Comprehensive Capital Analysis and Review

COREP Common reporting

CRD Capital Requirements Directives

CRM Customer relationship management

DSR Design Science Research

DT Design Theory

DFAST Dodd-Frank Act Stress Tests.

EBA European Banking Authority

EU European Union

IS Information System

IFRS International Financial Reporting Standards

ML Machine Learning

PA Process automation

RPA Robotic process automation

SME Small and medium-sized enterprises

FINREP Financial reporting

ix UML Unified Modelling language

XBR eXtensible Business Reporting Language

XML Extensible Markup Language

1

1. INTRODUCTION

In the corporate world, especially in the financial sector, millions of operations are being executed every day. They require a substantial amount of man-hours to organize their order and interaction and to document the entire process. Workflow automation allows to streamline business processes, visualize the existing tasks scheme, remove redundant task overflow and foster efficient employee interaction and collaboration. This paper offers an overview of different workflow automation techniques that can be used to improve business processes in corporations.

1.1 B

This dissertation aims to help the scientific community to move the subject of Business Process Management a bit further by exploring practical applications of the BPM and documenting and systematizing existing approaches in the leading developments. The scientific purpose of this study is to integrate the newest practical developments with an established theoretical methodology base in order to create a broad knowledge pool for the future usage. The finance industry is a highly representative research field. It demands processes to be as efficient as possible, very sensitive to the matter of inconsistencies and human errors and continually searches for additional value in existing processes.

Using the example of the financial process, we can measure the efficiency of already developed guidelines and software tools for financial processes and create a new approach that fits the given problem.

An organization’s success depends largely on the efficiency of its process management. A lot of research was carried out on BPM in the financial industry, but due to the proprietary nature of the subject, there is still a certain lack of practical guidelines for the companies. In this paper I combined the theoretical knowledge of introducing automation to industrial processes with the financial specifications and recent developments, creating a useful guideline for any financial entity.

During this research, I increased my knowledge of the industry practices, found the possible areas of application of these methods and technologies, and created a new framework for the process. It will help other researchers to get a practical base for future research and help the companies to understand the benefits of workflow automation better as well as provide a guide on the existing software for it. I will also use an example of a regulatory reporting process automation with the use of a created framework in order to illustrate the implications of introducing the technology into the existing financial process.

2

1.2 M

The reason for conducting this research was the lack of practical guidelines on business process automation in the financial sector. As most research is done by private financial companies, the results of their research and development are not being published. Hence the practical knowledge base of such implementations is scarce and limited. Therefore, small companies, startups, and SMEs are facing the challenge of implementing the best practices in the industry when designing their operational workflows.

1.3 O

In this dissertation, I will overview the workflow automation practices and recent developments. I will target the software platform and the tools used for BPMN diagrams creation, outline the process of describing and documenting all the tasks in the chosen business process, and create a functional workflow for this process. Automation plays an important role in the business as it helps to execute many operations simultaneously and to be much less prone to human error, therefore taking the business to a whole new level. In a highly competitive banking environment, it became crucial to have the most efficient workflows.

The main objective of this research is to use the existing theoretical background and apply it to the model of financial industry processes, in order to create a framework that describes necessary steps and specifics for business process automation.

3

2. LITERATURE REVIEW

Theoretical background for this thesis will include a wide range of sources aiming to build a full perspective on the process automation, finance industry, and modern software developments. In order to provide a background to the problem discussed in this paper, this research will start from describing concepts and specifics of the selected sector of the financial industry. It will help to understand which problems the BPM automation solves and the constraints that should be considered.

2.1 F

Service optimization is aiming to make processes more efficient and business more profitable. The digital revolution in the last decades has significantly impacted the approach to process management, improving process optimization for the financial industry.

For process optimization planning in financial entities, it is essential to consider that the resulting solution should bear no points of failure or logical errors, leading to catastrophic value losses. Hence all created automated processes should comply with pre-established guidelines and undergo thorough testing before running in a real environment.

There are many different types of processes in the financial organization. To name a few main ones, it consists of transaction processing, budget management, customer support, and HR management areas, all of which contain hundreds and thousands of tasks and events happening every day. Since all the data come in different types and formats, the company usually have to maintain several workflow processing systems to orchestrate those processes, As financial flow is very vast, in the scope of this paper I will review closely only the regulatory reporting problem and solutions in large and mid-size banks in Europe.

I will use regulatory reporting as an example of a financial reporting industry sector where processes in financial institutions can benefit and improve through introducing automation in the processes.

2.1.1. Regulatory reporting concept

Financial industry has existed from the beginning of human civilization, being a constantly changing environment. Its primary focus is to provide the banks and customers with a balanced system that is resistant to any world events and changes. In the past, the structure of global financial market regulation was quite stable and inflexible, with a defined supervisor structure that was setting rules for all financial

4 entities to follow. After several crises, like the Great Recession of 2008, national regulators started to rigorize the rules mandatory for any organizations playing on the financial market (Randall D. Guynn, 2010). These regulations cap the number of financial operations performed, and ultimately slow financial growth down, but they also allow to keep markets afloat in case of the major catastrophe such as recent events of sudden world pandemic and oil price drop. Although external events can have a different cause and financial impact, general rules like a dedicated capital amount for mitigating risks exposure still provide some protection against market fluctuations.

Large financial institutions are generally obliged to provide information about their operations to the established centralized authority of the region where the company is located. The regulator monitors these numbers and ensures that the firms are running their business safely and complying with the defined set of rules. Mandatory submission of data by banking and financial services firms is enforced in an attempt to establish complete transparency surrounding their financial records. Such data usually has to be submitted to the relevant regulatory body on a periodic basis: daily, monthly, quarterly, or annually.

This allows the regulator to evaluate a bank’s compliance with regulatory requirements, ensure that operations are in good health, and rein in any dishonesty. The format in which data have to be reported would depend on multiple parameters, including firm’s location, type of operations performed, and level of returns (Davies 2008).

To perform a thorough analysis regulator needs to receive full information on all market trends and the environment. The required format of reports must be standardized across all the entities to compare received reports and catch unusual data patterns and fraud possibility.

In each country, the structure and regulations of financial reports are different, even though there are seven international standards and agreements. The scope of research in this paper will be limited to European Union banking regulation structure.

In the EU, the financial supervisor’s role is executed by The European Banking Authority (EBA), which was established in 2011 as part of the European System of Financial Supervision (ESFS). The main objective of this authority is defined as “To maintain financial stability in the EU and to safeguard the integrity, efficiency and orderly functioning of the banking sector” (EBA, 2016).

Reporting can be useful not only for the worldwide regulators but for the internal stakeholders as well.

The type of reporting can be differentiated by the purpose of the data submission: financial and regulatory reporting. Financial reporting information is extracted from accounting data and used as a source for bank financial statements. It primarily targets internal company stakeholders, and other market participants, in particular equity investors and other providers of risk capital. Financial reporting can provide insights into the financial state and performance of a company, and it can reveal any

5 unexpected risks the company is facing (Noyu, 2014). On the other hand, regulatory reporting makes its purpose of providing regulators with all relevant information on the banks’ risk exposures and the structure of the capital and liquidity. EU rules on prudential requirements for banks are defined in the CRD banking directive that regulates the amount of capital and liquidity that banks hold. This directive comprises, among other things, the IFRS-based financial reporting templates for supervisory purposes (FINREP), and the capital requirements and own funds reporting templates common Reporting Framework (COREP) (Bank of England, 2019). Financial reporting forms the basis for regulatory reporting.

The main difference between the two types is the receivers of these reports: while financial reporting is mainly targeted towards internal stakeholders, as well as investors and creditors, the main addressees of regulatory reporting are banking supervisors. Regulatory reporting data structure is presented on Figure 1 for both frameworks.

2.1.2. Challenges in regulatory reporting

In order to understand how to improve the efficiency of existing processes, it is important to understand the company's main pain points during the reporting period. There are several areas of improvement, including organizational structure, resource allocation decision, and risk management. In this paper, the main area of focus would be reporting data flow handling and the challenges it presents (Accenture, 2015).

From the moment when a business unit receives information about operations that need to be reported, there are a lot of processing steps before this data can be sent to the regulator. The main values of reporting are transparency and comparability, and these values should be reflected in the process

Figure 1: FINREP and COREP regulatory reporting data structure

6 infrastructure. There are several main concepts that should be taken into consideration when planning reporting process automation:

• Data consolidation - Accurate and consistent data management is mandatory for any reporting process, as it is the base of all the information. The initial datasets are presented in different formats and come from a wide range of source systems. The task to standardize all the data to perform the further analysis is the first step in the reporting process and often involves both manual work and systematic processing to bring the data granularity to the resulting report.

• Data integrity - after collection, some of the data must be removed or adjusted to produce clean and correct dataset. These changes have to be stored and reported as well, to provide auditors the full exposure and make sure there is no space for machinations. It is quite hard to connect the resulting data with all the adjustments that have been made, especially because most of them are manual.

• Complex calculation in real-time: The firm has to perform various calculations on the given data sets, to produce the numbers of the risk evaluation and finance situation needed for the audition. The calculation parameters and measures depend on many factors, such as different country regulations, entity nature, and the report type. The national regulators enhance the stress-testing over the years, and they require more detailed and structured information about the calculations performed, and the underlying logic under them. This can involve financial institutions providing more granular reports and the necessity to document and align every piece of code or change that has been applied to the initial data (Chabanel, 2013 ).

• Reporting requirements: Bank should be able to provide documentation for every piece of data it's submitting. One important source of difficulty for financial institutions is the fact that these reporting requirements are often changing. Each national regulator has its own approach over how they design up their COREP and FINREP templates. This means that the data must be stored in different template formats, so multinational banks have to ensure the titles and the references for each entity are placed correctly and ensure the sign-off and feedback procedures are in place. The company must ensure that all the systems and processes are constantly up to date in order to be able to provide constant and accurate information in time.

The system in place must support the data formats set by the local regulator: XBRL models, as well as other electronic formats (Excel, XML, ASCII, Online) (EBA, 2016).

7 2.1.3. Unified report submission format

Both COREP and FINREP reporting frameworks utilize the eXtensible Business Reporting Language (XBRL) as a format for all regulatory reporting submissions. This format enables the systematic reporting of complex banking results, which can be easily compared with other institutions and countries (Chabanel, 2013).

XBRL format is a successor to XML, which is still being used for internal reporting purposes. Converting reporting data to XBRL is an essential step in financial automation. It allows to compare and integrate the data, easily therefore excluding the manual work and providing resources for data analysis and process improvement. To submit the necessary information about the company operations, this data needs to be aggregated into set of reports, defined by the regulator. Data in these reports are classified by the set of pre-defined rules, called taxonomy. These reports are then converted to XBRL format and are available for submission and comparison. Taxonomy acts as a dictionary, providing a direct way on information requirements for the data as well as increasing data transparency (KMPG, 2004)

XBRL format leverages a data point model, a taxonomy model, and a validation model in order to create a comprehensive reporting process. It allows the regulator to comprehensively capture and define the regulations in the comprehensible format of structures templates that make it easier for the banks to validate and submit their reports (Chabanel, 2013).

The task of data format conversion is highly formalized and includes a lot of identical operations, therefore it is almost always automated. Banks can either use a general regulatory reporting software that includes the XBRL conversion module, buy a separate XBRL conversion application, of create their in-house module. This transformation is usually done by the dedicated software program. There are several measures of the report template quality, such as reliability, consistency, timeliness, comparability, and granularity, that have to be maintained by such an information system.

2.1.4. Tools and Technologies

When it comes to information system implementation in a financial entity, there is a question on which system to choose and what metrics to use to access system implementation benefits. As many processes in a bank are not finance-specific and quite similar to the same processes in any large company that have to deal with large amounts of data, automation methods would be different.

Table 1 shows several main problem areas of the day-to-day bank operations. For each of them there are basic automation techniques that can solve this particular problem in general.

8

Description Automation techniques Software

Quantitative analysis

Data analysis of financial markets ande securities, in order to predict the outcome of financial operations.

Mathematical modelling Mathlab, Simulink, Anaconda

Trading

Performing operations on financial market by buying and selling securities.

High-frequency

operations Bloomberg terminal

Treasury

Calculating and managing capital in the firm, in order to support daily operations, as well as calculating risk produced by financial operations.

Big data process, machine learning, artificial intelligence predictions

SAP S/4HANA Financial

Balance sheet

Calculating the firm's assets, liabilities and equity for a given period of time.

Big data calculations Sage, Sap, Excel, Oracle Net Suite

Reporting Reporting the main financial

metrics to the regulator. Data transformation AxiomSL, OneSumX

Table 1: Automation for financial units

Banks may be aware of the need for automation, yet for various reasons remain hesitant to take the plunge. In many cases, it’s not as easy as buying and installing a solution off the shelf as costs, internal change resistance and the complexity of finding the right technology providers may all hold institutions back (FinTech Futures, 2017).

Financial reporting process consists of multiple data processing steps, most software providers separate their solutions based on a particular step of the procedure they are automating. Final regulatory reporting module leverages those of risk calculation of capital calculation modules. This structure is most

9 efficient on the market, because many banks have their in-house build software, and do not need replacement for it, but the automated tool that would cover the rest of the process procedure. On table 2 there are listed several regulatory reporting software tools that are the most popular in the Europe market segment. The tools are selected based on the Global Regulatory Reporting Solutions Market Report (Research Reports World, 2021).

10

Name Reporting Risk Capital Data Analysis

OneSumX FINREP, COREP,

BCAR, FRY-114, MiFID II, Economic &

Financial Statistics, ARPA, AnaCredit and Multi-dimensional reporting.

Provides portfolio- wide view of risks.

Supports

compliance, credit risk, financial crime, market risk, liquidity risk, and op. Risk.

Ability to perform scenario analysis, including ability to calculate capital changes required in potencial cases.

Business Analytics module: tracking unexpected

changes in

exposure, risk monitoring,

simulating what-if analysis, stress-

testnig and

visualisation to all the analysis reports.

Axiom Controller View Supports IFRS, COREP and FINREP, Liquidity, Solvency II,APRA. Has an option to customize validation rules.

RiskMonitor

Quantitative risk management solution. It covers market, credit, and liquidity risk, earnings at risk, and risk based economic capital.

ControllerView Platform supports CRD IV capital and risk-weighted asset calculations,

including COREP and FINREP reports, and BCBS.

Supports multiple granularity levels, allowing to drill- down to the sources of the resulting number vith UI dashboars

visualisation tool .

11

Name Reporting Risk Capital Data Analysis

Moody’s Analytics

Regulatory Reporting Module

Basel I, II, and III, as well as EBA,CCAR, and DFAST.

RiskCalc

RiskCalc models generate forward- looking probability of default or Expected Default Frequency

calculations, loss given default, and expected loss credit measures.

RiskAuthority application Performs

regulatory capital calculations for Basel I, II, and III, covering credit risk, market risk, concentration risk, liquidity risk and operational risk.

Scenario Analyzer:

enables financial institutions to implement

transparent, repeatable, and auditable stress testing processes

Comprehensive data visualization and discovery solutions, that allows to analyse industry benchmark data, create on- demand

dashboards, and use self-service to

get a more

comprehensive and holistic view of credit risk.

Oracle Financial

Does not have a solution module, but provide integration with AgileREPORTER from Vermeg, that handles all the reporting

functionality and XBRL generation.

OFSAA Risk

Management tool Computes basic credit risk ratios, provides

management desicion insights based on credit risk metrics, provides reports with extensive drill-down capabilities.

OFSAA Risk

Management tool Provides calculation engines to prepare all nesessary data for COREP and FINREP reports

Pre-defined physical data model for data

sourcing and

reporting

Table 2: Regulatory Reporting Software

On this table the metrics are linked to the main functions of the reporting module. Basic reporting includes reports generation from some data format and converting it to XBRL or any other data format

12 that is required for a particular type of reporting. The next module is Risk Calculation, which allows to calculate expected risk based on the input data. The other parameter is Capital Calculation, which calculates the amount of capital, the company needs to hold on it’s account based on the expected risks portfolio. These two modules are optional, as most companies calculate them with in-house software, however using one unified system would increase data traceability and granularity. The last module lists additional technical characteristics that each platform can provide.

These are not the only tools on the market, but they provide the overall picture on what characteristics manager can look at while choosing software component for reporting problem solution.

2.2 B

P

M

2.2.1. Business Process Management Concept

All products and services that a company produces are the outcome of a number of activities performed. Therefore alignment of the business activities with the defined goal of the process is a strategic goal for any complany manager and requires a wholesome approch. Business process can be defined as a set of activities that are performed in coordination in an organizational and technical environment. (Weske M., 2012)

Analysing and organising business processes in order to increase company’s efficiency and productivity is unavoidable measure that is needed to keep competitive advantage on the market. Business process management(BPM) can be defined as the body of methods, techniques and tools to discover, analyze, redesign, execute and monitor business processes (S. Conger, 2015). The main benefit of BPM is to create explicit representation of business processes and the tasks within them. Once business processes are defined, they can be subject to analysis, improvement, and enactment (Dumas M., 2018). Process improvement may take many forms, from splitting one activity to several small sub- tasks to be processed in parallel, to creating the new process architecture with the usage of the most modern best practices.

13 2.2.2. BPM Lifecycle

It requires continuous effort to maintain process development in a constantly changing environment. BPM consists of several iterations that form a lifecycle, and should be repeated continuously (Pic 1). These phases are not necessarily executed in a strictly defined order, they can be merged or swapped based of the current business needs.

BPM cycle starts with process definition and analysis (Figure 2). In order to effectively manage the process, it is important to create a robust structure of the process with clear definition of its nature, purpose and stakeholders.

The next step would be process implementation, introducing the process into the business environment.

The nature of the process could vary from presenting a set of new business rules to implementing a complex calculation system. This stage also involves selection of the technology products for process implementation and support. After setting everything up, the system requires thorough testing to eliminate errors and inefficiencies in the process model and actual implementation.

Figure 2: Process Lifecycle

14 The third stage of the cycle is process enablement. BPM purpose here is to supervise this process, guaranteeing that it is executed according to the designed process model. If the information system is used for BPM purposes, on this site it should monitor all actions and events that happen during the process. It also can visualise the whole process schema and reflect the current state of the process, so the manager can easily get the full information about it at any time.

Lastly, there should be performed process evaluation, in order to measure its utility and outcome. Initial success metrics are compared to the real results, and historical logs are reviewed and analysed with the use of process mining techniques (Weske M., 2012).

This structure of BPM lifecycle is aimed to create the most value as an outcome of the process. It emphasizes that in order to improve process metrics a solid process management structure should be implemented and maintained. Process management allows companies to increase efficiency of the process, with the benefits of consistency, cost, speed, quality, and service which can result in lowering operational costs and improving outcome value. It also adds to other strategic parameters of the process like flexibility, which means that some components of the process can be changed in a short amount of time, and without serious disruption of the normal activities flow. This option can be crucial for some companies, as inability to react fast to the changes on the market can lead to the whole process failure.

It is important to identify process stakeholders before process modelling exercise. Each stakeholder can have several responsibilities and areas of competence, but it is important to identify the people who will be responsible for creating the model of the process and be the owner of the end product. There are seven main types of stakeholders:

• Chief Process Officer who is responsible for standardising process in the whole company

• Business Engineer whose goal is to make sure processes are aligned with business needs of the enterprise,

• Process Designers who model the particular process and research the opportunities to improve them,

• Process Participants and Knowledge workers, whose role is to execute the activities and to know all necessary specifications about the process. They can also use software systems to perform activities in a business process.

• Process Owner that is responsible for execution of the process and orchestrates actions of each individual process workers

15

• System Architects are responsible for developing and configuring business process management systems in place according to the existing process structure.

• Software Developers who integrate the chosen business process system in place and develops additional components necessary for specific process.

When it comes to process model implementation, there can also be the role of process champion – the person, who will promote the usage of the implemented systems and help other stakeholders in communications in the new environment. This role can be essential, as the whole process implementation could fail in process participants are not onboard with the changes.

2.2.3. Process Modelling

After defining existing business processes in the company, it is essintial to capture the whole structure of performed activies and their relations. Transparency and communication about the existing procedures allows management to be fully aware of the current state of the business, avoid possible errors and make process improvement.

The representation of processes should be simple enougth, to provide a full picture of activities engaged in the process to the stakeholders that are not familiar with the technical details of the specific process. It should however be able to capture all nesessary relations and types of activities performed.

In order to improve understanding of the processes they could be presented as abstract models.

General process model abstraction methodology is based on gradually applying a number of abstarctions onto the intial process model. Each abstratcion in this method is a function that takes process model as an input and produces generalized process model as an output(Weske M., 2012).

There exist a number of languages designed for business process modelling other the years. There are several that gained the most popularity, like EPC (Event-driven Process Chain), UML-AD (Unified Modelling Language – Activity Diagrams) based on the most well-known UML standard, the IDEF (Integration Definition) and RAD (Role Activity Diagram) language, with a special focus on the participants in a business process and their interactions (Diogo Silva, 2016). One of the most commonly used today probably is the BPMN language (Business Process Model and Notation), currently in version 2.0, which is considered by many managers as industry standard of process notation.

16 BPMN is the most modern language notation that operates on process approach, as opposed to UML, which uses object-based methods. BPMN allows users to see more high-level structure, allowing business users to build and modify process models, without knowing all the technical details.

BPMN 2.0 was introduced in 2011, improving the existing BPMN notation language (Broke, 2015). THE first BPMN version introduced in 2004 was designed to bring closer existing process modelling tools and notations. BPMN 2.0 is an improved notation that is also compatible with most formats and support input from various vendors, which makes it a golden standard of the industry. One of the problems with BPM introduction was the separation of the front and back offices when management was mostly modelling and optimizing workflows on a business level, leaving technical tasks managed by local supervisors.

Software based on BPMN language allowed to unite front office business processes and underlying systemic and technical processes, giving management visibility into the technical structure, without the necessity of understanding specific details (White 2004).

2.2.4. BPMN

BPMN stands for Business Process Modelling Notation. It is the new standard for modelling business processes and web service processes, as put forth by the Business Process Management Initiative.

Business Process Modelling Notation system is used to design BPM processes in a clean and convenient form. BPMN is a very powerful tool when it comes to modelling existing business processes. It allows to reflect the process flow in a diagram, providing clear visibility even to the users that have no technical or industry specific background. It is mostly used to identify the best practices of existing approaches and to combine them into a new, widely accepted language. (Owen, 2003)

The BPMN diagram also provides the possibility to bind it to modern software technologies and perform all kinds of analysis or automation. In the scope of the process automation, it allows business users to create the structure of automated workflow without actual understanding of the technical side.

BPMN consists of several concepts with pre-defined behaviour, each of which is composed of a set of elements. These concepts can represent a task in a business process, a decision which has to be made or interconnection between them. Using BPMN notation manager can model practically any process that needs to be visualized. These concepts can be classified into four categories (Brocke, 2015):

• Flows - main blocks of business process. They include activities, events and gateways. Activity can be defined as some work that is done by a company or it’s contractor. BPMN classifies activities as processes, sub-processes and tasks. A Task is an atomic activity, that cannot be divided into smaller parts of work. Events are used to display anything that happens during the

17 process – especially start and end of the process. Gateways are used to represent decision making and define which branch of the flow would be executed.

Each piece of the flow has it’s distinctive graphical representation, shown below:

• Artifacts - represent supporting objects, that are not driving the flow itself. They include data objects, text and annotations. Artifacts allow managers to better understand the process and underlying logic.

• Pools and Swimlanes represent the way of organizing the hierarchy of the project. Pools define organization or a group, participating in the process. Pools are divided by lanes, which defines specific participant in the given process that executes a set of tasks. For example, for a given business process in a company, each lane could represent business entity department, and sub-lane would be used to define organizational entities within those departments.

• Connecting objects - several type of connectors that describe interaction and data flow between all the objects. The type of connection depends on the linked objects – two activities

18 within one lane should be connected by sequence flow, but connection to another lane would have message flow type.

In order to create a BPMN diagram of an existing process, the BPMN specialist have to interview the key stakeholders and users of the process, to capture all the necessary data and daily operations routine. The process can change and evolve with time, and these changes should be taken into account and captured on the updated diagram in order to keep the model up to date. BPMN diagram also can give manager a perspective on the bottlenecks of the process and contribute to process optimization.

It is therefore essential that the software that the manager would use to build the BPMN model should be user friendly and provide all the necessary tools.

There are many BPM modelling software tools on the market that provide visual representation for business workflows, allowing users to build a process model without writing any code or UML descriptions. They can support complex sub-processes schemas, store information on each task and event and even simulate the process run. Workflow simulation allows to create automatic time estimation for the whole process based on the given initial parameters, finding process bottlenecks and highlighting the inefficiencies. The problem of most efficient resources distribution is quite complex, and BPMN-based tools can provide insights on this matter.

19 2.2.5. Business Process Automation

The main goal of BPM is successful execution of the given processes in an effective and efficient way.

But to maintain a profitable operation of the company it is necessary to keep in mind not only local deliverables, but also the main goal of the whole business. The manager should not put the existing infrastructure at the forefront as a constant, but rather to adjust existing processes to suit the changing needs of the business.

There are several methods of increasing efficiency of the existing business process. First there is identifying and removing redundant tasks, simplification of existing process and automation of manual

activities (Brocke, 2015).

1. Process learning - refers to relatively minor changes, like identifying and removing redundant tasks. This transformation keeps the main workflow but optimize some parts of it. Sometimes small improvement can lead to a major profit, cutting out the unnecessary tasks and keeping resources.

2. Process redesign - A more powerful type of organizational change in which business processes are significantly improved. Business process redesign reorganizes workflows, simplifying the structure of the process. Process redesign considers all the aspects of the workflow and can result in major changes in the way the job is done, employees turnover and introduction of automation.

3. Process co-production or automation - replacing the existing manual tasks or some parts of it with software-based process executors or removing them outside the business flow by transiting the execution to a third party.

Information technology plays an important role in business process management nowadays. The Business Process Automation (BPA) concept, that was introduced in the late 1990 was initially just an automated flow of documents of one company entity to another. With time, this approach gained popularity and became much more complex, now being able to replicate the work of the whole business unit. The disadvantages of this approach is that implementing a complex business process in workflow automation software takes a lot of time and depends heavily on the software, which quickly becomes outdated. Main solution to this problem is to build reusable workflows in user-friendly applications that can be easily maintained and updated without much technical support.

20 The other direction was previously named “process re-engineering” that was performed mostly by management and eventually led only to staff number cutting and often resulted in process failure.

Nowadays the approach in the transformed state is still very popular and allows us to constantly maintain the best process flow, responding to the changing environment.

When approaching process redesign problem, change manager can look at several criteria that indicate that the process can be improved in a certain way:

1. Logical completeness - Some activities have no input, output, or defined logical place

2. Sequencing and duplication - tasks performed not in the most efficient way: they could be performed in parallel, instead of sequential order, or performed several times, or just performed in a wrong order.

3. Subprocesses that requires or produces more data than is needed

4. Process decision making points implemented in a wrong way - receiving not enough information to create the right decision, or lack of base business rules and policies on which the decision have to be made

Subprocess measures absence, or irrelevance to the actual time, cost and quality of the process. Also, these measures should allow management to plan for changes in pace of flow volume.

Business processes in a company can include some automated parts in addition to the tasks executed by humans, or even be fully automated, executing without the need of any human involvement. Although there are still manual activities required from the customer side - so interaction with the human user is an essential part of the process model. As an example of such a process we can take the process of withdrawing money from a customer's account.

Both manual and automated tasks have to be managed in an efficient and precise manner, while bringing the gap between them together. This problem can be resolved by introducing additional software piece, called business process management system (BPMS).

Even if the automation system is introduced, there are still plenty of manual operations. These procedures require a robust framework that will eliminate the possibility of an error or missing data.

Often, these manual workflow works pretty well, being and tested over the years, but if some basic regulations rules suddenly change, the workflow should adjust quickly, often increasing the workflow capacity. To perform such a change on an unsystematised area will require an enormous number of working hours and will lead to an increasing possibility of errors or delays.

BPMS is a generic software system that is driven by explicit process representations to coordinate the enactment of business processes (Weske M, 2012). Such a system can help process architecture to model

21 an existing process, or even replace some of manual tasks, by connecting and executing activities automatically.

There are two main directions of technology development when it comes to the BPMS. First, there are the tools that allow users to model the existing process, analyse it, and provide metrics for finding the weak patterns and following process optimization. The second direction is an actual process automation system. It is basically an engine that runs the internal tasks automatically, without the human order.

These tools help businesses identify and document processes that require improvement, create models of improved processes, capture and enforce business rules for performing processes, and integrate existing systems to support new or redesigned processes. BPMS tools also provide analytics for verifying that process (Laudon J., 2012).

There are several main BPMS that are used by companies of all sizes, from startups to large enterprises.

Manager that is responsible for introducing BPMS into the company, should be able to analyse the needs of the business and compare them to the characteristics of the selected tool. A certain set of measures can be used to describe and compare those tools, in order to provide useful information on each tool and compare them between each other. Main purpose of the BPMS is to provide value for the business, so we need to evaluate just how much each tool can improve company process. Here are several business values measures:

• Operational – Advantages that software provides for the everyday business (cost reduction, cycle time reduction, quality improvement)

• Managerial – Benefits on the management level, like support on decision making

• Strategic – Provide business value, create product differentiation

• IT infrastructure – IT cost reduction, flexibility, compatibility with another tech stack

• Organizational – Provide support to organizational changes, increase data visibility.

The other direction of measurement is the quality of the given software. It should be comfortable for the user to work with and have a small percentage of failures. These metrics, such as reliability, performance efficiency, security, maintainability, system support are usually listed in the contract that the software provider offers along with the product specifications. There are also some points that have to be considered when choosing a software, like usability of the product, which means that the tool interface is simple and clean enough for the business users to actually prefer this software over manual operations. The other metric is testability – meaning the level of documentation and support guidelines on the product. All these criteria should be accessed during the trial period or testing a demo version.

22 Using some of these criteria I reviewed several Business Process management tools that are widely used in medium and large corporations nowadays. In table 3 there is a summary of the main features that those BPM tools have. This table shows what are the tools with widest range of functionality. The characteristics for each tool provide an overview of the software purpose and functionality it provides.

23

Name Description Integration Cost Functionality Technology

advance:

IIBM Business Automation Workflow

Bpm and case management processing tool. Allows to create workflows, provides visibility over process, provides a set of tools to author, test, and deploy business processes.

Java integration, Web service integration, ILOG integration, Enterprise Content Management (ECM) integration.

Express edition/Cloud

– free,

Enterprize subscription -

up to

4000$/year

Integrated process and case

management,Automated desicion making, Cloud service for all features supports decision making,

Have an option to add IBM RPA robot

Op. Sys: all

Creatio (BPM Online)

Cloud-based low-code platform for process management and CRM.

Integration of third-party systems and applications, which includes REST API support, OData protocol, SOAP services, OAuth

authentication and LDAP protocols.

400$ per user/year

BPM automation

platform with an option to connect CRM system.

Allows to analyse historical data patterns witht the use of embedded ML component.

24

Name Description Integration Cost Functionality Technology

advance:

Camunda Corporate workflow automation system.

Support big amounts of data, fast and very

customizable.

Used by

Goldman Sachs, NASA

Java REST framework, provide integration with old BPMS as a service

Open-source, small price for enterptrise support licence

Have both BPMS and DMN Engines so that users can define and maintain executable business rules.

Alloys to model the process and execute it providing users control over the event triggers.

Bizagi Digital Business Platform. It offers a complete BPM suite in the form of three

products that are used to automate business processes.

Have a SAP connector API.

Also

assemblies or through the SOA layer.

Support OAP Web services

or REST

services in an asynchronous or

synchronous fashion.

Modeller – Free, Studio – Free, Engine - 311/year(or 800+ 134 for maintanance)

Engine - support task execution, script execution. If connected to Sap(or alternatiive), data operations.

Supports and promotes RPA software

integration

SAP Cloud Platform Workflow

Sap Cloud is a workflow orchestration service. SAP Cloud

Platform Workflow allows users to build, run, and manage workflows,.

Sap provide software customization as a service, therefore it is compatible with almost any software that the company is using already.

Up to 500/

per user, plus customisation cost

depending on the

requirements.

Workflow modelling and execution for business processes, along with DMN functionality.

Workflow engine is also integrated with RPA bots.

AI, RPA, ML implementations for better process

automation, AI can be used to implement predictive analysis

25

Name Description Integration Cost Functionality Technology

advance:

Oracle BPM Oracle BPM is a complete set of tools for creating, executing, and optimizing business processes.

Oracle BPM is based on the SOA.

It consumes adapter services exposed as Web Service Definition Language (WSDL) documents.

Per request Set of tools tomodel, implement and execute business process. Also supports integration for variety of user interfaces.

AI, RPA, ML implementations for better process

automation, AI can be used to implement predictive analysis

Table 3: BPM Systems

While BPMS can automate general mundane tasks like sending emails or launching scripts, there are a lot of industry specific issues that can’t be solved just by launching a script. Some processes in a bank can be complicated and can be automated only by software designed specifically for this purpose.

2.3 W

2.3.1. Workflow automation concept

In a modern world more and more activities that initially was performed by people are transitioning to a fully automated state, making information systems that supports them a major part of business ecosystem (Laudon J., 2012).

Process automation leads to existing processes streamlining and eliminating redundant tasks, replacing manual work with a software engine. Introducing automation in the company requires a persistent approach. Automating an inefficient process may only result in increasing time and wasting further resources. This can lead to even worse decline in quality of the resulting product. Therefore, the first step in process automation should be business process documentation and analysis, in order to come up with the most productive scheme. Setting up the software also requires rigorous analysis of infrastructure required for the existing tasks pool execution. Creation of the tasks interaction system (especially involving several different departments) also requires prior research and accurate prediction of all possible outcomes.

26 There are different types of process automation, which requires targeted information system solutions.

The most global would be Process Aware Information systems which exploit the information for activities in the process related to one another, thus they are considered process aware (Maayan, 2017). The most common types of such systems are ERP, CRM, SCM, that could be provided either by the big leading corporations such as Microsoft and Oracle, or small online-markets, and even built as an in-house software product by the company itself. These systems are most commonly customer or user-oriented, they provide the clarity and automation of day-to-day business operations. The other type are Issue Tracking Systems such as Jira, GitHub, Asana, Azure DevOps. Practically any company that has an IT development uses these systems as they are very efficient in tracking process progress and allows to maintain historical logs of personal responsibility for the resolved issues. Another example would be Document Management Systems, like FileNet or SharePoint that are widely used in all types of business and personal development. The last type is Business Process Management Systems. Weske defines workflow management system as a “Software system that defines, creates, and manages the execution of workflows through the use of software, running on one or more workflow engines, which is able to interpret the process definition, interact with workflow participants, and, where required, invoke the use of IT tools and applications”. It is essentially a system that supports the design, analysis, execution, and monitoring of business processes on the basis of explicit process models. It can be the main driver of process automation change and be the centre of all everyday tasks and operations.

Implementing workflow in a company is a complicated process, consisting of several areas of focus (Figure 3).

27 While designing or choosing BPM tools for the company, several areas of application could be targeted.

Process automation provides the potential of increasing the bandwidth of the task performance system. Manual processes can lead to costly delays and omissions, moreover they are prone to human errors.

The other important aspect is shared access to the common tasks pool. Imagine the mail processing system, where each incoming message should be answered by any person from the certain group. The challenge here is that each person should know which emails are already being processed by other employees, and which are already answered. Simple notification system that tracks the actions of the group and marks the emails respectively could bring a major increase in productivity and sustainability of this task performance. This is a very simple example, but usually the system that needs a distributed access is much more complicated. A streamlined process of mortgage approval, or transaction processing will require several groups of people to interact with each other and coordinate their actions in order to complete the process. Also an hierarchy of permissions should be implemented, along with an archive of logs, in order to keep control of the data that employees have access to.

Figure 3: BPM lifecycle(Lawrence, 2006)

28 Finally, the automated process should maintain visibility and provide access to the data that it absorbs and produces. Managers should be able to easily create or retrieve activity reports on nearly any aspect of process activity (Lawrence, 2006). Ideally it could also provide the analysis of the given data and find patterns and sequences empowering sophisticated methods of data analysis, such as statistical analysis and machine learning. Having clear visibility of all the data involved in the process helps to optimize the process itself, avoid the hidden errors made in the middle of the process, and get better returns in the end.

2.3.2. Workflow Automation Architecture

Workflow applications coordinate work between tasks performed by humans and automated tasks to improve daily business operations. Architecture of the workflow management system is aimed to organise the subsystems that execute both human and systems driven workflows.

Baseline structure for workflow system architecture WfMC (Workflow Reference Architecture) was created by Workflow Management Coalition group in 1995 in order to provide a common view to all future developments of WSA. Since that time complexity of the WMS increased significantly, mainly increasing the role of automation part workflow, but the principles remained. General interpretation of that model is presented on Figure 4 (Weske M. 2012).

Figure 4: Workflow Reference Architecture (Weske M. 2012)

29 This architecture model consists of several components, each representing a subsystem.

Workflow modelling component provides the option of creating model of the future workflow. The model has to have a clear specification of all the technical aspects and details of the modelled business process.

Workflow modelling repository subsystem stores already designed workflow models and provides access to the workflow engine. In the modern applications this subsystem often is a part of either modelling solution of workflow engine itself.

Workflow engine is a driver for executing the modelled process. It creates new instances of the workflow if a new process is started and orchestrates execution of other subsystem components.

In case if the system activity is scheduled for execution, workflow engine invokes a call to the respective subsystem and transfers all the necessary data for the scheduled task. Otherwise, If the human action if needed in order to complete the task, the engine creates a notification for the defined group of users.

Human interaction with this task is done via the Graphical User Interphase.

In order to showcase the modern architecture principles of workflow automation software it is helpful to look at one recent development system example.

As an example of such system, we can look at BPMS Camunda. It is an open-source platform for workflow and decision automation that brings business users and software developers together (Winters, 2018).

Camunda system architecture scheme is shown below on Figure 5.

30

The core of any Workflow automation tool is a workflow engine. It orchestrates the tasks, providing a streamlined business process, by organizing and tracking the implementation of workflow.

Camunda BPM is a Java-based framework. The main components are written in Java, and it can easily be integrated with any Java-based application, which is the main competitive advantage of this framework.

Large corporations can integrate this platform with the proprietary software that ensures that the platform can be used for specific needs of the company. Camunda business proposal is providing Java developers with the tools they need for designing, implementing and running business processes and workflows on the JVM. It also has a REST API which allows applications with any software architecture and technology stack to use Camunda by connecting to a remote process engine.

Although the process engine uses sophisticated technology stack, the application itself is designed to be used by non-technical users. It has a graphical UI, which allows business users to build business process models and automate the process, without knowing the underlying code base.

2.3.3. Automation in regulatory reporting

Every company wants to get the most benefit of its resources and optimise operating costs as much as possible. Even though absence of process automation has a lot of obvious downsides, the process

Figure 5: Camunda arcitecture (Winters, 2018)

31 transformation cannot be started without the company's decision to do so. Manual data handling process leads to overall scarcity, and also being very prone to human error.

In the context of regulatory reporting this could lead to late or incorrect data submission to the regulator, which in due course could result in serious negative consequences. For example, CitiGroup was fined 44 million this year for errors in UK submission reporting (Bank Of England, 2019). One of the things which made it happen were processes not being properly documented and outlined. The problem could have been resolved by introducing some business process management system that would provide clear visibility for management to see the flaws and errors in existing processes. When looking at process automation from a business perspective, there are several measures apart from general risk elimination that have to be set before starting the project, such as process cycle time before and after optimisation, access the cost efficiency of the changes in different scenarios of optimisation and readiness of the business units to accept the changes.

In this paper I will take notional model of COREP reporting process as an example of automation implementation. Main steps of the COREP workflow are shown on the schema below (Figure 6).

Figure 6: COREP data flow (Moody’s, 2013)

32 The increasing role of IS in business models leads to higher impact of the IT imperfections. It is not only outsider malice, but regular risks connected with IT that could cause a huge profit loss. Many banks still use outdated and fragmented IT systems, which are hugely prone to error. Therefore the main effort should be dedicated to simplifying and modernising the existing IT systems, constantly bringing new technologies to aid (Enria,2019).

Financial institutions are making significant effort to embrace the newest technologies and implement them in risk management systems, to organize the overall risk architecture, and improve their enterprise data management and audit.

The most common solution on the general market when it comes to big data is various cloud-based systems. However due to the sensitive nature of the data and corporate and government policies, there are many legal complications connected to storing and processing data outside the company. Several SASS providers partnered with financial institutions to create a solution that would provide essential data analysis and management tools, while keeping up with all the regulations.

One of the noticeable examples is partnership of Amazon cloud services and Accenture. They developed several solutions that can be used by banks to use as a tool to process the risk data. One of them is Risk Calculations for Cloud, which mainly provides a customised cloud storage for the datasets, supporting various data formats, but also allows to perform high-latency calculations, taking all the performance load and maintaining platform reliability of the client company (Accenture, 2015).

2.4 E

Computational services have become the major financial evolution driver in the last several decades.

It allows financial markets to operate in conditions close to the perfect balance, so it is protected from the incidental bumps and allows to make decisions based on the financial market theory.

As the financial industry was in a great need of automation from the very beginning, it produced the whole branch of technology software, called Fintech. It was evolving in stages, starting in 1990, when the first methods were introduced in the market. The first line of software was just implementing basic calculations and mathematical models, replacing the human accounting process. This group of solutions was called Fintech 1.0. The second stage, Fintech 2.0 which is also called Internet finance. At this stage, technology is a force for financial revolution and provides emerging Internet enterprises with the opportunity to use Internet technology to connect the supply and demand for financial products and services (Zheng, 2019). Finally, the most modern developments in Finance 3.0 are focusing on predictions