1310997244 forrester bloomberg whitepaper
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A Forrester Consulting Thought Leadership Paper Commissioned By Bloomberg
Financial Services Firms Accelerate Shift To
Cloud-Based Archiving For Compliance
April 2011
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Table Of Contents
Executive Summary ................................................................................................................................................................................. 2
Financial Services Firms Struggle With Compliance Requirements ............................................................................................. 3Half Of Financial Services Firms Plan To Adopt Hosted Compliance Solutions ....................................................................... 6Key Recommendations ........................................................................................................................................................................... 9Appendix A: Methodology................................................................................................................................................................... 10Appendix B: Supplemental Material .................................................................................................................................................. 10Appendix C: Demographics/Data ...................................................................................................................................................... 11Appendix D: Endnotes .......................................................................................................................................................................... 11
2011, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources.
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About Forrester Consulting
Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in
scope from a short strategy session to custom projects, Forresters Consulting services connect you directly with research analysts who apply
expert insight to your specific business challenges. For more information, visitwww.forrester.com/consulting.
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Market shift: Half offinancial services firms
plan to expand or roll out a
hosted compliance
solution by the
end of 2012.
Executive Summary
Organizations are increasingly adopting cloud-based solutions for message archiving due to perceptions of lower total
cost of ownership (TCO), more rapid deployment capabilities, and other advantages
vis--vis traditional software deployments. Small and midsize organizations in
financial services have relied on software-as-a-service (SaaS)-based and hosted
message archiving solutions for years. Yet, many of their larger counterparts have
held off on leveraging this deployment model, citing security, operational, legal,
and other concerns. The market, however, has reached a tipping point and will see
significant adoption of cloud-based message archiving by financial services enterprises of all sizes over the next two
years. In November 2010, Bloomberg commissioned Forrester Consulting to evaluate the current state of archiving and
compliance in the financial services sector, capture enterprise expectations, and examine changes in anticipated
application delivery models.
Key FindingsIn conducting an online survey of 187 North American decision-makers with responsibility for compliance, messaging,
and legal risk mitigation employed by financial services firms, Forrester found that:
Financial services firms struggle with compliance. Fifty-five percent of respondents describe complying with
data privacy laws as challenging. Also, decision-makers report significant difficulties in meeting litigation
requirements, recording and archiving obligations, employee communications monitoring needs, and other
regulatory requirements.
Compliance challenges are multi-faceted. Edging out concerns about cost, 75% of the financial services
decision-makers surveyed highlight concerns about reputational damage in conjunction with regulatory
oversight and investigations. Respondents also cite major concerns with compliance-related application
integration and lengthy response times.
Financial services firms focus on a broad set of content and application types for compliance. In addition to
email, organizations perceive file shares, physical records, line-of-business applications, mobile messaging, and a
wide range of other content types and applications to be critical for regulatory purposes.
SaaS-based and hosted archiving solution adoption is increasing at a rapid clip. About half of financial
services firms plan to leverage hosted compliance solutions prior to 2013. While small and midsize customers
account for the bulk of the customers for these services today, over the next 24 months, larger financial services
organizations plan to ramp up adoption.
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eDiscovery alert: Only 33% of
financial services firms are
very confident that they can
demonstrate that their
electronically stored
information is accurate,
accessible, and trustworthy.
Financial Services Firms Struggle With Compliance Requirements
In a late 2010 survey, Forrester found that 81% of respondents across all industries rated regulatory compliance as a
critical or high priority for the next 12 months. 1 Certainly compliance in the financial services sector isnt trivial. Even
though many organizations have faced stringent regulatory requirements for years, its clear that meeting archiving and
compliance objectives proves painful for many organizations. For example, in a Q1 2010 Forrester survey, fewer than
half of respondents reported satisfaction with their current message archiving solutions. 2
Companies in the financial sector face an alphabet soup of regulations. While other
regulations can apply, these obligations may include: US FINRA 3110, US SEC 17a-3 and 17a-4, UK FSA Code of
Business Sourcebook, EU Data Privacy Directive, US state data privacy laws, US Federal Rules of Civil Procedure(FRCP), and various others related to tax, corporate, and labor requirements. Wading into this mix, our survey found
that financial services firms face a broad set of frustrations in meeting regulatory and compliance challenges (see Figure
1). While privacy concerns lead the list, financial services firms describe major challenges in meeting litigation
requirements, recording and archiving obligations, employee communications monitoring requirements, and other
regulatory demands.
Our ongoing exchanges with
enterprises via inquiry, advisory, and consulting engagements highlight that major
challenges continue. Whats behind all of these difficulties? To address this
question and to get further insight into compliance and archiving challenges and
enterprise plans, Bloomberg commissioned Forrester to capture extensive survey
data from financial services firms.
To address this complex set of regulatory, compliance, and eDiscovery demands, many organizations have deployed a
mix of disjointed applications. The resulting application fragmentation itself can be a major challenge. Archiving and
retention management approaches, often built as separate, isolated, and incomplete initiatives, can't keep up with
current digital asset growth and the mandates that enterprises must follow to manage content proliferation. Fifty
percent of financial services decision-makers report that lack of integration across archiving, compliance, andeDiscovery applications inhibits their organizations cross-functional coordination for eDiscovery. Shifting from one
application to another during the eDiscovery process adds a "transformation tax" in the form of added cost, increased
time, and greater risk inconsistent technologies and policies add to eDiscovery pain.
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Figure 1
Financial Services Firms Face Challenges With An Array Of Compliance And Regulatory Obligations
Base: 187 North American decision-makers responsible for compliance, messaging, and legal risk mitigation at financial firms
Source: A commissioned study conducted by Forrester Consulting on behalf of Bloomberg, January 2011
Compliance Challenges Come In Many FormsFinancial services firms report that the cost of addressing compliance requirements, difficulties in integrating with
related systems, and slow response times stand out as major obstacles. Yet, potential reputational damage leads the list
of concerns stemming from regulatory oversight, reporting requirements, and investigations (see Figure 2). Reputations
matter a great deal in the financial services sector. Headlines matter consumers are fickle and often face low barriers
in shifting to alternate financial services providers. In addition to cost concerns associated with investigations and
eDiscovery, financial services firms take active steps to avoid allegations of improper activities or actual wrongdoing,
and these concerns can play a big role in rolling out compliance and archiving programs.
8%
27%
28%
30%
37%
35%
33%
36%
3%
10%
12%
14%
10%
12%
15%
19%
Other
The SEC Investment Advisers Act of 1940
Requirements related to outsourcing
Other record retention laws
Employee communications monitoring obligations
Recording and archiving requirements ofemployee communications
Litigation holds and other litigation requirements
Data privacy laws
Challenging Very chal lenging
Which of the following represent top regulatory and compliance challenges
as it relates to electronic communications for your organization?
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Figure 2
Compliance Challenges Stem From Multiple Concerns
Base: 187 North American decision-makers responsible for compliance, messaging, and legal risk mitigation at financial firms
Source: A commissioned study conducted by Forrester Consulting on behalf of Bloomberg, January 2011
Organizations Focus On A Broad Set of Content And Application Types for RegulationeDiscovery and regulatory requirements arent just about email. The revised US Federal Rules of Civil Procedure
(FRCP) highlight that a wide variety of electronically stored information can be relevant to eDiscovery. Seventy-eight
percent of our respondents state that they have been involved in extracting detail from email systems for investigation,
eDiscovery, or to respond to a regulatory request. The comparable figure is more than 35% for shared drives, physical
records, and Microsoft SharePoint repositories. Looking ahead, its clear that financial services firms have major
concerns about a broad array of content and application types (see Figure 3). For example, even with its relatively short
history, more than one-third of respondents rated regulatory concerns around social media as important and over half
give similar ratings to recorded voice data, instant messaging, and other types of unstructured and structured data.
49%
50%
47%
37%
18%
21%
27%
38%
Lengthy response times
Chal lenges integrating with related systems
Total cost of meeting these requiremen ts
Potential reputational damage
Concerned Very concerned
When thinking about the increasing amounts of regulatory oversight, reporting requirements,
and investigations, how concerned are you by each of the following?
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Figure 3
Multiple Content And Application Types Are Important For Regulatory Purposes
Base: 187 North American decision-makers responsible for compliance, messaging, and legal risk mitigation at financial firms
Source: A commissioned study conducted by Forrester Consulting on behalf of Bloomberg, January 2011
Half Of Financial Services Firms Plan To Adopt Hosted Compliance Solutions
Enterprises anticipate significantly expanding SaaS-based and hosted archiving and compliance applications. Forty-
nine percent of decision-makers in financial services expect to expand or roll out a hosted compliance archiving
solution prior to 2013 (see Figure 4). Historically, small and midsize financial services firms accounted for the largest
portion of customers for these solutions. Many of these companies grappled with a combination of very tight IT
budgets and strict regulatory requirements, and for them, cloud-based solutions were a good fit. With deeper pockets
and more extensive internal IT capabilities, however, many of their larger counterparts opted for traditional on-
premises software deployments to address archiving and compliance objectives. This market reality is rapidly changing.
For example, among financial services firms with 20,001 to 100,000 employees, 47% plan to roll out or expand a hosted
compliance archiving solution by the end of 2012 (see Figure 5) These results clearly demonstrate that a broad mix of
smaller firms and larger enterprises in financial services plan to adopt hosted compliance archiving solutions over the
next two years.
6%
17%
27%
36%
35%
36%
40%
33%
34%
32%
33%
25%
3%
17%
16%
19%
21%
23%
20%
29%
32%
42%
46%
57%
Other
Social media (e.g., Facebook, LinkedIn, Twitter)
Bloomberg Messaging
Recorded voice data (e.g., recorded phone calls and voicemail)
Corporate instant messaging
Microsoft SharePoint
Other document management/ECM
Mobile messaging (e.g., BlackBerry messaging)
Line-of-business applications (e.g., ERP, CRM)
Physical records
Shared drives/file shares
Email
Important Very important
How important are the following sources of regulated content to your organization?
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Figure 4
Half Of Financial Services Firms Plan To Adopt Hosted Compliance Solutions Prior To 2013
Base: 187 North American decision-makers responsible for compliance, messaging, and legal risk mitigation at financial firms
Source: A commissioned study conducted by Forrester Consulting on behalf of Bloomberg, January 2011
Figure 5
Firms Of All Sizes Plan To Adopt Hosted Compliance Solutions
Base: 187 North American decision-makers responsible for compliance, messaging, and legal risk mitigation at financial firms
Source: A commissioned study conducted by Forrester Consulting on behalf of Bloomberg, January 2011
Don't know22%
Yes49%
No29%
Do you expect your organization to expand or roll out a hosted compliance archiving
solution by the end of 2012?
Size Yes No Dont know N
501 to 1,000 employees 24% 31% 45% 29
1,001 to 5,000 employees 60% 29% 11% 45
5,001 to 10,000 employees 52% 26% 22% 27
10,001 to 20,000 employees 79% 5% 16% 19
20,001 to 100,000 employees 47% 37% 16% 38
More than 100,000 employees 38% 35% 28% 29
Do you expect your organization to expand or roll out ahosted compliance archiving solution by the end of 2012?
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Total Cost of Ownership and Deployment Speed Drive Hosted Compliance AdoptionSo, whats behind this anticipated increased adoption for SaaS-based and hosted archiving and compliance solutions?
Enterprises frequently express frustration with legacy on-premises message archiving software, and many are turning to
service-based approaches. In comparison with traditional software applications, top drivers leading to adoption of
hosted compliance archiving applications include perceptions of lower TCO, more rapid deployment capabilities, more
attractive cost models, and other deployment and functional advantages (see Figure 6). As vendors continue to address
security, operational, privacy, and legacy concerns associated with these deployment models, Forrester expects
adoption of SaaS-based and hosted archiving and compliance to increase at a rapid clip.
Figure 6
Low Cost, Rapid Deployment, And Attractive Cost Models Drive Hosted Compliance Archiving Adoption
Base: 92 North American decision-makers responsible for compliance, messaging, and legal risk mitigation at financial firms that plan to adopt a
hosted compliance archiving solution
Source: A commissioned study conducted by Forrester Consulting on behalf of Bloomberg, January 2011
3%
33%
39%
39%
45%
49%
59%
60%
Don't know
New regulatory requirements require an improved solution
Superior compliance and archiving features andfunctionality compared with on-premises alternatives
Global solution that can be easily deployed to all regions
Improved search and retrieval capabil ities compared withon-premises alternatives
More attractive cost model (impacting overall operational asopposed to capital budget) than on -premises alternatives
Easier and faster to deploy and manage than on-premisesalternatives
Lower overall total cost of ownership (TCO) than on-premises alternatives
What factors are driving your organization to expand or roll out a hosted compliance archivingsolution by the end of 2012?
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KEY RECOMMENDATIONS
Regulatory requirements and eDiscovery pain are driving many organizations to expand or roll out archiving and
compliance solutions. Over the next 24 months, about half of financial services firms plan to adopt hosted compliance
archiving solutions to address these needs. This represents a major market shift, and as companies go down this path theywill need to navigate carefully. Forrester recommends that financial services firms:
Take a close look at capturing advantages from cloud-based approaches but exercise caution. Hosted and
SaaS-based compliance and archiving applications can deliver significant TCO, deployment speed, and other
benefits, but companies should closely consider contractual and other supplier considerations. In addition to well-
defined service-level agreements, enterprises should document provisions for security, potential data loss, and
physical location of the data and ensure that these are sufficient for your organizations legal and corporate
guidelines. Ultimately, youre on the hook for your content. Its important to recognize that cloud-based
approaches dont absolve responsibility.
Dont expect to boil the ocean, but plan for a broad range of content and application types. Litigation,
investigations, and other regulatory actions often center on email. The survey findings, however, clearly show that a
broad range of content and application types are critical from compliance and eDiscovery perspectives. Of course,
its not feasible to apply archiving and compliance controls across all content types simultaneously. Instead,
Forrester recommends focusing on content types and applications that provide the greatest legal risk mitigation
and IT benefits, while weighting vendors cross-application functionality heavily during the selection process. Also,
while eDiscovery demands loom largest in the US, litigation and compliance requirements affect organizations
globally. Financial services firms must determine archiving needs across numerous country, regional, and local
regulatory requirements.
Make sure that you dont shift your digital landfill to the cloud. Many enterprises report difficulties in
establishing retention policies and synchronizing legal hold functions. All too frequently, companies end up stalling
on developing these policies and may simply not delete content due to litigation concerns. As a result, many
organizations are steadily building up a digital landfill that creates IT and legal risk mitigation burdens. In
transitioning to cloud-based approaches for archiving and compliance, financial services firms will need to ensure
that they develop and implement retention and legal hold policies for content captured by their service providers.
Emphasize stakeholder alignment. Without sufficient cross-functional collaboration across IT, legal, compliance,
records management, business, and other roles in developing retention policies, organizations often stumble with
change management, risking archiving and compliance program success. Make sure that your firm applies
appropriate attention to aligning stakeholders in developing policies and gathering system requirements and look
to support these efforts with governance structures.
Take a close look at how your cloud solution will integrate with related applications. Fragmentation across
archiving, compliance, and eDiscovery applications frustrates enterprises and leads to increased cost and risk
during litigation and investigations. Financial services firms evaluating offerings should be leery of end-to-end
vendor claims as these often reflect marketing hype as opposed to actual tight application integration. Companies
should expect to work with different providers to support archiving and compliance and broader eDiscovery needs,
but vendors with demonstrated integrated functionality (delivered natively or via proven partnerships) can
facilitate archiving and compliance objectives.
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Appendix A: Methodology
In this study, Forrester conducted an online survey of 187 decision-makers in North America from financial services
organizations to understand the regulatory and compliance challenges and concerns related to electronic
communications. Survey participants included decision-makers responsible for compliance, messaging, and legal risk
mitigation in firms with more than 500 employees. The survey began in December 2010 and was completed in January
2011.
Appendix B: Supplemental Material
Related Forrester ResearchThe Forrester Wave: Message Archiving Software, Q1 2011, Forrester Research, Inc., March 4, 2011
Q&A: eDiscovery Fundamentals For Content & Collaboration Professionals, Forrester Research, Inc., December 15,
2010
Q&A: Message Archiving Fundamentals For Content & Collaboration Pros, Forrester Research, Inc., September 7,
2010
Regulatory And eDiscovery Demands Drive A Growing Message Archiving Market, Forrester Research, Inc., March
17, 2010
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Appendix C: Demographics/Data
Figure 7We Captured A Wide Distribution Of Organizations By Number Of Employees
Base: 92 North American decision-makers responsible for compliance, messaging, and legal risk mitigation at financial firms
Source: A commissioned study conducted by Forrester Consulting on behalf of Bloomberg, January 2011
Appendix D: Endnotes
1 Source: Forrsights Security Survey, Q3 2010.
2 Only 45% of respondents reported satisfaction with their current message archiving solution. Source: Q1 2010 Global
Message Archiving Online Survey, Forrester Research, Inc. Further findings from this survey are available. Source:
Regulatory And eDiscovery Demands Drive A Growing Message Archiving Market, Forrester Research, Inc., March
17, 2010.
501-999employees
16%
1,000 to 5,000employees24%
5,001 to 10,000employees
14%
10,001 to 20,000employees
10%
20,001 to 100,000
employees20%
More than 100,000employees
16%
"Using your best estimate, how many employees work for yourfirm/organization worldwide?"