Brace yourself for swift post-crisis regulatory changes, retail banks told
By Enterprise Innovation Editors | 2010-12-08
As a preventive measure against possible economic backlash in the future, governments and standards bodies are set to implement regulatory reforms next year, a fact that the retail banking industry should be prepared of, according to analyst firm Ovum.
In a new report*, the independent technology analyst claims that a barrage of changes to IT systems are on the horizon for 2011 and beyond, as authorities try to prevent any future banking crises from paralyzing fragile economies emerging from a sustained period of weak or negative growth.
However Alex Kwiatkowski, Ovum analyst and author of the report, believes that the banking industry has not put aside the funds and resources needed to pay for the IT changes, even though they have been mooted since the sector’s near-meltdown of 2008/09.
Kwiatkowski said: “As yet, retail banks have not put aside the funds and resources required to undertake this extensive programme of work on IT systems, which will swallow a large portion of technology budgets.
“They will need to take a new approach to IT planning and investment in 2011 if they are to deal with the cost of the new legislation, while remaining competitive, and against a backdrop of continued cost constraints due to the downturn. The successful banks will be those who can balance the needs of the regulator with the needs of the business and its customers.”
According to Kwiatkowski, retail banks are unprepared as they have been waiting for the details of new regulations, such as the global-level Basel III accord, which will have a profound effect on key capital ratios and associated reporting requirements. He said: “While Basel III will be phased in from 2013 to 2019, it will be in 2011 and 2012 when the foundation blocks are laid, so there is no time to put off planning.
“Regulatory guidelines are also being tightened and scrutiny increased at both a regional and national level, and inevitably there will be additional legislation to comply with aside from the demands of Basel III.
“For example, the Dodd-Frank Act in the US or reverse stress testing for banks within the European Union will drive mandatory technology transformation projects if institutions wish to avoid the wrath of banking authorities.”
Kwiatkowski believes further pressures will be placed on retail banks’ IT departments by the need to integrate systems gained through acquisitions. He said: “Although the sector has largely stablised, the purse strings will not be loosened in 2011. IT executives will be expected to do more with less, but without introducing additional levels of unmitigated risk”.