Systems investment to implement and support change in financial regulation
The increased velocity of change in financial regulation poses challenges to the vendors who provide the financial institutions with the technology and related services to conduct and support the processes behind financial market transactions.
While vendors may not themselves be subject to the regulations, in many instances they are as deeply engaged in the changes as institutions subject to the financial regulatory.
As vendors become aware of forthcoming regulatory changes, which will have an impact on the operation of their customers' systems, it clearly makes sense to plan and frame the proposed changes. The changes will impact their customer base. It makes sense from an economy of scale and should to some extent reduce the cost of change for the customers. This requires an up-front investment in planning and framing the systems changes before any revenue may derive from the customer base from implementing any system changes.
Much of challenge in planning for regulatory changes is not in understanding the legislation or rules but their mode of application. Vendors are one step removed from the regulators. Unless they have access to any guidance notes, vendors must rely on the customers to state how the regulations will be applied and the impact this will have on any changes to the technology systems and services.
Regulators are notoriously slow and even diffident in advising the mode of application, relying frequently on representation from the regulated community before any final view is formed and articulated.
Quantifying the cost and time to complete is as difficult and challenging for the vendor as for the customer. Planning and budgeting become subjective and speculative exercises, which can only be refined in the short period before implementation.
Currently, and for the next two years, substantial amounts of systems and technology budgets are being allocated to support what may be described as 'regulation and compliance'. The costs and resources are to a great extent non-negotiable and are driven by timetables set by regulators. The risk of misjudgment of costs and resources is likely to rise, as regulatory changes become a more material element of the drivers of technology changes and development.
Copyright 2004. Originally published by IT-Director.com, reprinted with permission. IT-Director.com provides IT decision makers with free daily e-mails containing news analysis, member-only discussion forums, free research, technology spotlights and free on-line consultancy. To register for a free e-mail subscription, click here.
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