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An article relating to this blog post on Finextra:

OTC clearing rules to spur big tech spending - Tabb

The global regulatory push to centrally clear over-the-counter derivatives has started a "technological revolution" that provides a big opportunity for vendors, according to a report from Tabb Group.

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Compliance: a money-spinner for Tier-1 banks?

The huge spend required for some of the compliance programs for European banks seems set to divide banks into two extremes:

- small and medium banks who simply cannot afford it, and may decide to get out of certain businesses or buy outsourced services

- big banks who can: and may even end up making money selling white-labelled services to the "lesser mortals"!

Compliance requirements like OTC clearing rules for capital market players, and Basel III and SEPA for banks have a large impact footprint across the IT and operations landscape. Banks will weigh the costs and other pros and cons of the following main options:

-          getting compliant with existing systems

-          building a new (in-house) system from the ground-up

-          implementing a standard package solution (if available and if it helps business)

Now that the compliance deadlines are in place, and IT is being asked to put a number on these compliance projects, one can expect the following:

-          Tier-1 banks keen to make the most of this spend are tying together key transformation programs or legacy renewal projects along with the compliance project, perhaps even expecting a return-on-investment in medium-term

-          Tier-1 players who decide to spend on compliance programs may as well make money selling white-labeled compliant platforms and/or services to the Tier-2/3 players – e.g. BCG's new report on Global Capital Markets 2012 indicates this is likely to happen in the case of OTC clearing rules!

-          Given a spate of cost reduction and staff cuts over the last few quarters, big banks will have to look for IT providers and outsourcing partners to help achieve these compliance / transformation projects.

-          Given that compliance-related spend is unwelcome additional spend (not likely to affect existing jobs) this is also a chance for relatively conservative Continental European banks to introduce sourcing/offshore approaches given lower internal or political barriers involved.


Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 13 May, 2012, 11:01Be the first to give this comment the thumbs up 0 likes

Transformation during Post Merger Integration was an attractive proposition during the GFC when several takeovers of banks happened. In principle, transformation during compliance is equally attractive. But, it is far more difficult to realize in the latter case since regulations seem to happen in drip feed. By the time FIs absorb the full scope of the compliance program, deadline pressures are too severe for them to do much else than simply achieve compliance. 

Samarth Shekhar
Samarth Shekhar - SixThirty Ventures - Amsterdam 27 June, 2012, 10:37Be the first to give this comment the thumbs up 0 likes

You are right Ketharaman, this is indeed the situation in most banks, and what I am calling for is planning in advance so that compliance is not only a bitter pill to swallow but is used for transformation as well. I would, however, limit this argument to larger compliance programs which have significant impact across the IT landscape of the business area e.g. Front Office in case of MiFID, Payments/Core Banking in case of SEPA etc.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 28 June, 2012, 14:23Be the first to give this comment the thumbs up 0 likes

Agreed - I know one bank in the UK which did the "mother of all business transformations" in the case of SEPA Direct Debit: Retire all internal systems and outsource processing to one of its major competitors!

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