DataArt semi-annual financial technology seminar at Harvard Club of New York gathered industry elites to discuss the big trade-off between efficiency and IP protection in consulting relationships.

The distinguished panel, moderated by Phil Albinus of Waters magazine, focused on due diligence as a key factor in outsourcing, and came to an interesting conclusion: many capital markets firms don’t perform proper due diligence before engaging a technology vendor.

Vladimir Dubinin, head of High Frequency Trading at Deutsche Bank, noted that each firm first has to determine the kind of due diligence it wants to perform (technical, legal, human factor), and then pursue each depending on the degree of importance. He also mentioned that in choosing a vendor, two key factors play a crucial role: years in business, and the list of existing clients.

Dean Miller, Deputy Chairman at Orbian noted that IP risk is but one of the risk considerations that must be evaluated by financial institutions. He observed that in his experience it was secondary to the risk of fraud which is compounded with the involvement of third party consulting relationships.

Ravi Manchi, Principal at Westwater corporation, stated that due diligence is equally important for onsite engagements performed by internal or external resources and offshore outsourcing engagements: the same due diligence should be performed, and if the sufficient trust level is established, the relationship can be initiated.

Other subjects of discussion included questions of what constitutes truly proprietary information in today’s financial institution, multi-sourcing as a means to preserve competitive edge, and measuring access to information by in-house staff, local consultants and offshore outsourcers.

Eric Karpman, Vice President at BoNY Mellon Asset Management, suggested a two-tier approach: keeping strategically important business data in house and outsourcing technology components to an IT vendor.

The event was followed by a wine reception. The next panel is scheduled for November 2008.