An Engineer of Change: State Street CDO James Hardy

Thirty years later, Hardy is now chief data officer for banking and custody giant State Street, responsible for many of the data-led initiatives—both internal as well as those mandated by regulators—to mitigate the risk of such systemic market crashes reoccurring. And despite ascending to the bank’s upper echelons, Hardy’s early training as an engineer still shapes the way he addresses problems—from anti-money laundering (AML) projects to the challenge of digitizing every part of State Street’s business.

After graduating with a BSc in electronic engineering in 1987, Hardy was drawn to the nascent field of computer programming. As an engineer, he had always been fascinated with breaking things down into their component parts to solve a larger problem, and the relatively new profession offered exciting career opportunities. After Black Monday, he spent three more years as a computer programmer at BIS, which owned the Midas banking platform and later became part of Misys Financial Software. He got on well with clients and became responsible for client implementation and support, transferring in 1990 to work directly for Danish financial services firm Unibank, which was later acquired by Swedish banking group Nordea. Based in London, Hardy spent four years implementing risk systems for the Danish bank all over the world, which he says provided his first big lesson in how to approach large-scale enterprise initiatives. “Sometimes the insurmountable can be surmounted, if you believe it can be, and if it’s done correctly,” he says.

Offered a promotion, he declined a move to the bank’s headquarters in Denmark, and instead headed to New York in 1994, to serve as head of technology for Unibank’s New York branch. Three years and one green card later, he decided he needed to learn more about the industry and went to work for Arthur Andersen. Here he learned a second important lesson: talk to people, and perhaps more importantly, listen to them. “It’s surprising how much you know if you talk to people who want to know about what you want to know. I really enjoyed and learned a lot by being able to talk to various clients about their challenges—some of which I had an intimate knowledge of, and some of which I had a more cursory knowledge of,” Hardy says. 

This thirst for knowledge saw him start a part-time MBA in Finance from NYU Stern at the same time, and spent a busy couple of years burning the midnight oil for clients primarily in Washington, DC, and commuting back to Manhattan to attend classes.

At the turn of the century, despite being on a partner track, he left Arthur Andersen and moved to Boston to manage the sales and delivery arm for the Northeast region at Context Integration, a company that built Web systems for financial services clients. As the dot-com bubble burst, the company entered a difficult couple of years of layoffs and pay cuts, as it struggled in vain to stay afloat. In 2002, with the writing on the wall, Hardy went to work for one of the vendor’s clients, State Street. 

Start of an Era

Hardy’s first role at State Street was leading the small IT team supporting the firm’s foreign exchange business, though the role ultimately grew to CIO for the bank’s sell-side division, State Street Global Markets. This was very much an IT role, reporting to the CIO of the bank, but he also had a purview over data issues. He noted that the various business lines within Global Markets lacked a common approach to data usage, and led efforts to functionally decompose how the division operated, to find common ground between those functions so that he could ensure the most efficient and effective use of both technology and data. 

In 2011, he transitioned out of IT and into the operations and business side as chief operating officer of State Street Global Markets, overseeing various large-scale transformation efforts, ensuring appropriate delineations between the front, middle and back offices within the division’s trading businesses, and standardizing processes, technology and the corresponding data as much as possible from an operational perspective. 

It was during this time that data took on much greater importance for the industry as a whole: As the compliance burden increased in recent years, the firm recognized a need to break down data silos. To support various regulatory initiatives—such as the Basel Committee on Banking Supervision’s BCBS 239 regulation, as well as liquidity and interest-rate risk regulations—requires a robust and efficient approach to data and its supporting infrastructure. There are common threads across the data required to support these regulatory initiatives, and the firm needed someone who could look horizontally across the organization, Hardy says.

As COO of Global Markets, Hardy was asked to assess how the firm could more effectively manage the changes and costs required to meet these regulatory challenges. He looked at what other financial firms—as well as non-financial companies, such as retail and biotechnology, which tend to be further ahead with digital transformation efforts than financial services firms—had done: what structures they had put in place, and what cultural changes breed or inhibit success. 

He saw that many firms had appointed a CDO, but their remit, seniority, and lines of reporting varied widely from firm to firm. CDOs could be focused on a particular domain, the broader governance policy side, or data management in specific areas. After looking at the successes and failures within various industries, he determined that State Street’s CDO needed to be closely aligned with the business. 

“The CDO role needs to be aligned with technology from a philosophical point of view, but not reporting to the technology organization, because it needs to be driven by business thinking and business meaning,” he says. This was a cultural shift for the firm, and after Hardy submitted his recommendations, in July 2014, State Street asked Hardy to take on the new role himself. 

His next transformational program was also driven by compliance requirements. In mid-2015, the US Federal Reserve issued State Street an enforcement action after it failed to comply with the Bank Secrecy Act, AML rules and US economic sanctions. Hardy was tasked with revamping the firm’s entire AML and sanctions screening approach across the bank, focusing on the first, second and third lines of defense. 

“This involved taking a fresh look at the benchmarking of regulatory requirements across the globe, establishing policies for the compliance organization, and then putting in a brand new infrastructure to support the pillars of the program,” he says. 

This effort totally changed how the organization looked at data. Know Your Customer (KYC) and transaction monitoring rules require firms to understand their relationships with each customer and the associated risks. Hardy took a blank-slate approach, aiming to establish a single view of a customer across the bank, and then enriching that with all the additional information needed to manage risk. Creating a complete dataset of the firm’s contractual relationships with customers across business lines and products, in all geographies, was initially deemed an insurmountable task, and represented a dramatic shift in approach. It was particularly challenging, given the firm’s global operations, and the number of disparate data privacy and bank secrecy regulations globally. But as someone who doesn’t respond well to being told a task is insurmountable, Hardy says he believed in the firm’s ability to achieve this goal—and today the firm has a well-recognized dataset with regards to its customer relationships. 

The Data Transformation Journey

Key to achieving this was that Hardy knew it would not be practical—or financially possible—to try and revolutionize the way a firm uses data all in one go. There has to be an underlying reason for making a change, and Hardy says he has found the best approach is to embed data management and governance changes into those specific initiatives. 

Management and governance are complementary aspects, but the management aspect is much easier to sell to business users, he says. Where the firm has created master datasets, people are lining up to consume the higher-quality data in their daily operations. But data governance has a less immediately tangible value, and unless it is done well, it can seem to be merely adding bureaucracy. It’s easier to sell the value of better governance in the context of regulatory initiatives like KYC or BCBS 239, he adds. 

As part of its multi-year Beacon Project, announced in August 2016, State Street is attempting to digitize every aspect of its financial services business. Data will not only be a key driver of the process of digital transformation, but will also underpin upcoming disaster recovery planning initiatives, and compliance with European data privacy laws, which are to be harmonized across EU member states. Good data governance will be at the heart of knowing where customer data is recorded and how it is secured.

Tackling data governance as part of regulatory or other transformation initiatives makes it much easier to get business buy-in, as it is seen as adding value to those particular projects, Hardy says.

The potential to add value is one of the drivers behind State Street’s participation as a co-founder of Clarient, an entity data utility originally co-founded by the Depository Trust and Clearing Corp. along with a consortium of global banks—Barclays, BNY Mellon, Credit Suisse, Goldman Sachs, JPMorgan Chase, in addition to State Street—and recently acquired by Thomson Reuters to strengthen its KYC managed services and legal entity data. State Street collects certain customer information from utilities such as Clarient, and combines it with the firm’s own proprietary and confidential information, to provide a richer customer dataset. Following his work creating customer master data sets, and his appointment as CDO, Hardy became State Street’s representative on Clarient’s board.

In a sense, initiatives like Clarient embody the projects Hardy has run in-house for years to find areas of commonality between different areas. Clarient provides a more efficient source of client reference data by enabling firms to collect previously uploaded standard customer documents from the utility, rather than each firm collecting them separately from every customer. 

“There was an industry view that we are all reaching out to many of the same counterparts and customers and asking for the same information. It’s inefficient, it’s point-to-point, so why can’t we—and why shouldn’t we—create a utility that can serve our customers in getting certain information and documents once that we all need, and then enable the collection of those documents from that utility?” he says.

Working on this sort of initiative comes with its own specific challenges. “Anyone who has been involved in an industry consortium will attest to the fact that it’s very difficult, because you’re essentially creating a startup among large institutions. Each member has to think of both the responsibilities of being a board member, for the wellbeing of Clarient, as well as the individual’s responsibilities to their institution,” he says. In the end, he says it worked effectively, because all parties shared a common goal for driving down KYC costs and increasing quality, and because there are no competitive issues associated with managing this sort of data. So long as there is no breach of confidentiality, and where there is a common interest, working together can be an appropriate way to cut overheads, Hardy says.

Food For Thought

Outside of State Street, Hardy works at another bank: the Greater Boston Food Bank, where he serves on the board of advisors for technology. Though the large non-profit providing food to the needy in the greater Boston area might seem a far cry from his day job, understanding data is a key component of GBFB’s mission, and how it supports that mission through the introduction of technology.

The food bank is increasingly moving toward distributing fresh produce, which is healthier than canned goods, but which has a much shorter shelf life, making it essential to get it from donors and providers to recipients as quickly and efficiently as possible. “That’s a whole new level of how you use data to understand projections of consumption, where people need it, who’s providing it, and to level that out in a more sophisticated way. It’s a microcosm, but the need for that type of efficient operation is exactly the same as in any industry,” Hardy says.

The board meets at least once every three months, and there are ongoing projects requiring more frequent interaction. Hardy’s involvement comes both out of a personal conviction that giving back is important for the community, and because State Street encourages its employees to take both local and global views of social conscience, he says. 

Whether in this role or his various positions at State Street and over the course of his career, Hardy has found that his early training as an engineer has furnished him with the essential problem-solving skills that make connecting the dots and finding commonalities between seemingly disparate things an opportunity that he relishes. 

“Being an engineer enables you to break down problems into their fundamental parts, which drives the core of what may be the solution to those challenges, he says. “Thinking like an engineer also enables you to break down business processes to gain a thorough understanding of how the business operates.”