The retail banking industry must prepare for an onslaught of IT changes in 2011 due to regulatory reforms designed to protect fragile economies from future crises, according to 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 2008-2009.
“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," says Kwiatkowski.
Kwiatkowski adds that retail 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, 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 adds that 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," notes Kwiatkowski.
Kwiatkowski believes further pressures will be placed on retail banks’ IT departments by the need to integrate systems gained through acquisitions.
“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,” he says.