An independent study and whitepaper by financial industry think-tank, JWG, released by Interxion, has shown that 71% of respondents from the banking and insurance industries in Europe did not believe that legacy system upgrades, required to meet compliance objectives, would be complete by a required implementation date in 2015, while an overwhelming 90% stated that penalties for non-compliance by the end of this year will run into the tens of millions of dollars.
The research is based on interviews conducted with industry practitioners, a pan-European industry survey of IT decision makers within banking and insurance firms and a review of more than 4,000 pages of regulation stipulated by the G20 in the aftermath of the financial crisis. These include the implementation of new capital requirements, as defined by Basel III and Solvency II, and reforms such as MiFID II and the European Market Infrastructure Regulation (EMIR) that will significantly affect firms’ systems, controls, reporting and record keeping ability. These regulations require major upgrades starting in 2012 and rippling across industry sectors for the rest of the decade.
With 40% of respondents saying they lacked confidence in the ability of their overall ICT infrastructure to comply with upcoming regulations, 30% said they would need third-party data centres to fulfil compliance and security requirements, whilst also being able to reduce operational risk capital buffers.
"Many financial institutions are trying to run services on disparate systems whose complexity and inflexibility make it difficult to respond to regulatory demands," said PJ Di Giammarino, CEO, JWG. "But non-compliance could lead to significant fines or even cost firms their licence to practice."
"The accountability for compliance will most likely lie with IT and operations, but there is no evidence that they are engaging with the regulators to set the right standards. There is a clear disconnect between infrastructure practitioners and compliance experts which needs to be resolved fast if firms want to maintain their competitive advantage as well as comply."
"The impact of the G20 regulatory reform on financial institutions’ ICT infrastructure requirements will be significant and it is clear that firms need to invest in the ‘correct’ technology," said Kevin Dean, chief marketing officer, Interxion. "Building internal data centres is no longer an option for many firms due to capital restraints emanating from Basel III and Solvency II and the prevalence of legacy systems. Therefore banks and insurers are increasingly re-thinking their data centre strategies and considering the externalisation of their facilities."
"This research from JWG highlights the role suppliers can play in better supporting industry requirements and in helping banks and insurance firms navigate the vast terrain of legislation."
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