A majority of recently polled European financial services and insurance executives, 57 percent, believe that they are now in the back seat when it comes to help shaping the upcoming regulatory standards and that regulators and suppliers will take the lead, according to findings by industry think tank JWG and published in a white paper sponsored by data center host Interxion.
What is a bit more surprising is that 48 percent of the respondents also believe that the regulators and suppliers will figure out the compliance standards within the next 18 to 24 months without input from the financial institutions.
It is doubtful that this would be strictly a punitive measure for the industry, but rather an admission that financial institutions do not have the available capital and bandwidth to meet all regulations coming out of Brussels and various other national capitals in a fast and furious manner.
The report authors cite that most financial firms allocate 90 percent of their respective IT budgets to maintaining legacy systems, which leaves little to address the across-the-enterprise nature of the new regulations.
After reading the rest of the paper, I hope regulators, and the firms themselves, realize by changing the previous “roll your own” dynamic of system development and deployment to one of buying off the shelf will lead to longer deployments and push back compliance deadlines.
Right now everyone, firms and suppliers, are waiting for the regulators to finalize the rules. Once that happens, every firm can start developing and deploying its systems to meet compliance. Unlike bespoke solutions developed internally by firms, suppliers have additional overhead in terms of development, quality assurance (QA) and marketing. They are not thinking about what is good for one implementation, but what is best for their entire client base. Then there will be the issue implementation and adapting the third-party technology into a firm’s infrastructure.
All I can say is that the industry should prepare for this new way of doing things. The fallout of 2008 knocked the industry for the loop and the single-digit returns many businesses have seen over the past few years has forced them to focus on their core business, which isn’t technology. The best way forward for financial institutions is to strike up constructive conversations with their suppliers, who have never been in the driver’s seat before.