More misery ahead for retail bank IT

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While Britain has started to hear the stark details of Government cuts, the retail banking industry should be bracing itself for an onslaught on its IT departments, a market analyst has warned.

In his report, Alex Kwiatkowski, an Ovum analyst, claimed a “barrage of changes” lie ahead as regulatory authorities plan to bring in measures created to prevent a recurrence of the recent crisis.

He added these measures will hit the IT departments hard because he does not believe the banks have prepared themselves for this eventuality.

“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,” Kwiatkowski said.

The retail banks have been waiting for details of new regulations due to come into force. These include the Basel III accord, which it is said will have a profound effect on key capital ratios and associated reporting requirements. Although the regulations will not be phased in until 2013, the foundations have to be laid before then, he said.

The banker’s misery will not end there. “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,” he added.

These forthcoming guidelines are the reverse stress testing for banks within the European Union and the Dodd-Frank Act in the US. Both have been shown to govern the role of IT systems in banking and will drive mandatory transformation projects necessary to avoid the wrath of the already-bruised banking authorities.

“[The banks] 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 against a backdrop of continued cost constraints due to the downturn,” Kwiatkowski said.

“The successful banks will be those who can balance the needs of the regulator with the needs of the business and its customers.”

The financial crisis has also benefited the surviving banks by creating an acquisitive environment but these fortuitous mergers may have a darker side. Kwiatkowski said he believed the systems integration projects have become a poisoned chalice for the IT departments.

“Although the sector has largely stabilised, 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,” claimed the 2011 Trends to Watch: Retail Banking Technology report.

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