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There has never been a greater need for banks to focus on their core business

The European Securities and Markets Authority (ESMA) delays seen earlier this year in the delivery of the final technical standards for the Markets in Financial Instruments Directive (MiFID II) and continued uncertainty on some of the implementation details, has left many asking whether there will be enough time to complete internal projects before implementation (currently January 2017). So far, no delay to this deadline has been announced and firms are, as a consequent, dedicating more and more resources into running what is in many cases a massively complex project.

Along with the huge amount of effort going into preparation for MiFID II, there is now a significant amount of confusion. Many platform advancements have been put on the backburner, as development resources are spent trying to meet MiFID ll requirements. Technology advancements in larger firms, designed to benefit customers, are also likely to be delayed further because of reluctance to burden customers with additional changes.

At the same time as all of this, there is increased pressure (and increased awareness of the increased pressure) from a new wave of startups in the shape of nimble challenger banks, fintech firms and crowdfunders. Many large institutions now recognise just the real and significant threat to their core business model and are seeking ways to cultivate new ideas, capture some of the culture, innovate and provide the necessary advances needed to keep up.

The fact is that for banks and large financial firms, the majority of the IT budget is used for the care and maintenance of current legacy IT infrastructure, leaving only a small amount for improving the customer experience. Traditionally, banks have been sizable telecoms and data centre businesses in their own rights, and are not always the most efficient - largely because it’s not their core focus.

It’s not uncommon for big banks to run large data centres that are relatively empty but still require all of the resources that any top tier facility would, from remote hands to on-sites engineers that service the hardware and handle the cabling and cooling. With such investment to keep the lights on, along with Gartner’s prediction that worldwide IT spending in the financial sector is set to dip by 2.4 per cent to $486 billion in 2015, how can banks be expected to innovate and compete with startups that are pushing the boundaries using elastic as a service (XaaS) offerings?

This conundrum and the lack of clarity on matters of regulation highlight the need for banks to release the IT burden and focus on the core business. Significant players in the industry are alert to this fact. These institutions are noticing that ownership of the underlying IT assets has no relationship with the ability of a firm to dominate in a sector. Why? Because the investment in scale and IT development needed year on year is no longer a realistic option for any financial institution, the budget requirements can’t compete with that mammoth all-consuming MiFID II project. Hence why so many of these firms have transformation projects running that contain the well-worn slide with “world’s largest taxi company owns no vehicles…,” etc.  As they recognise and acknowledge this, they’re facing the challenges and investigating their options for radically transforming their legacy estates. They know that small changes simply aren’t going to cut it.

Of course, radical transformation is subjective and depends on the bank’s individual journey to the cloud. Letting go of the physical layer of technical infrastructure may be a massive step for one bank, whereas anything less than outsourcing complete responsibility for IT to an expert organisation may not be enough for another. Regardless, the need for financial institutions to focus on their core business has never been greater. 

 

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