With such a wide ranging raft of regulation on the horizon, all of which will require changes of varying cost to individual financial services provider’s internal systems, coupled with the huge cost that capital reforms (Basel III) will have across the industry, the drain on resources is going to be acute over the coming months and years. Such pressure will often lead to cost cutting exercises (e.g. headcount, capital expenditure, customer benefits, etc.) but can also lead to a reduction in lending levels to both business and consumers.

Lessons can be learned from recent regulation which, in some cases, is still being implemented. The estimated costs of changes to the IT infrastructure of deposit takers to implement the Financial Services Compensation Scheme’s Single Customer View (SCV) initiative – circa £1 billion – is huge. Although Intellect welcomes investment by financial institutions in technology there is a question whether the requirements of the FSCS’s SCV could have been met by the commercially focused SCV that many banks were already working towards, with a reduction in associated compliance costs. This additional cost of compliance may also be borne by the taxpayer as state owned banks will have to ‘spend to comply’.

Whilst Intellect fully supports regulatory efforts to improve the stability, transparency and performance of the financial services industry, it believes there is a responsibility for regulators and industry to take a more informed approach to the development of policy and regulation in financial services – especially with regard to the likely impact that changes will have upon financial service providers’ IT systems. This should be undertaken at an early stage to avoid unnecessarily expensive or time consuming changes and identify potential alternatives or opportunities to adapt existing systems that could achieve the same result, but with reduced levels of disruption to the institutions, the market and customers.

A means to achieving this might be through an adaption of ‘Concept Viability’, a service that Intellect has successfully developed that allows both public and private sector clients to take market soundings to test the practicability of their ideas at the earliest stage. Flaws or additional considerations in proposals can be highlighted without competitive issues being compromised, and innovative solutions through emerging technologies can be discussed alongside frank dialogue about the risks incurred.

This is a service supported by the Office of Government Commerce, the Cabinet Office and HM Treasury and this principle could be transferred to the evaluation of proposed regulation, the consideration of implementation scenarios and mapping of technology solutions. Such an approach would be especially advisable for the state owned banks which are at risk of adding further burden on the public purse if they are forced to implement regulation in an ill-thought out and expensive way – ‘Compliance Viability’.

Intellect fully supports regulatory efforts to improve the stability, transparency and performance of the financial services industry. However, it also believes that regulators should evaluate the likely impact of implementation on financial service providers’ IT systems at an early stage to avoid unnecessarily expensive or time consuming changes and identify potential alternatives that could achieve the same result, but with reduced levels of disruption to the institutions, the market and customers. 

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