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How should the FCA be supporting the FS sector?

Established just over a year ago, the creation of the FCA has attracted controversial opinions from the start. Most recently it faced condemnation for pre-briefing regulatory plans that shocked the industry and slashed the value of insurer shares. While this caused major headlines, now the initial furore has died down, there should be more debate about the FCA’s 2014 business plan and regulatory agenda. 

Whilst annuity payments caused the headlines, the underlining issues quite often lie in the technology used by financial services providers that doesn’t allow them to offer more competitive products and services. A considerable source of customer complaints is system outages that block access to current accounts or disable direct debits. Some in the industry are waking up to the need to address the IT infrastructure weaknesses that trigger these service interruptions. But, as financial services are further digitised, there are doubts whether the FCA has enough technology skills and knowledge to regulate on raising the standard of financial technology. Too frequently the regulator is turning to outside consultants to fill internal gaps, which is perhaps indicative of not making IT infrastructure improvement a top priority. 

The FCA need to be supporting the financial services sector in rethinking their approach to IT, in particular how they allocate their IT budgets. Rather than looking at spending 80 percent of it on maintenance and 20 percent on innovation, they should think about doing this in reverse. By creating an IT architecture today that is highly agile and able to change easily, cheaply and quickly, firms can avoid creating tomorrow’s legacy systems. This will avoid the so-called “Frankenstack” IT architecture which has been created in virtually every bank and insurance company. A lot of the existing legacy systems are a result of software products bought from major IT companies acquired through their company takeovers and amalgamated/interfaced and integrated into a stack of loosely coupled products which require significant annual investment in maintenance and adaption. These outdated systems significantly affect the industry’s ability to offer its customers a seamless, efficient and effective service. 

Being able to instantly get a 360 degree view of the customer is the dream for financial services firms as it allows for effective monitoring of customer interactions and allows these to be maximised for cross- and up-selling opportunities. However, many companies are still struggling with this concept. Wrestling control of every customer interaction and IT system provides institutionalised best practise on guiding the customer interaction, getting the best outcome and staying within regulatory guardrails. Firms can drive efficiency and effectiveness through automation, which will deliver higher revenue, lower cost, higher profit, better customer satisfaction, plus, what’s often overlooked, higher staff morale. What’s more, using analytics tools based on good data enables firms to individualise every customer touch point and make them feel good about being your customer, which is a major way to rebuild lost customer trust and loyalty. 

In my view, the FCA would more than repair its bruised reputation if it took a serious look at helping the sector tackle service quality problems linked to financial services IT infrastructure that is increasingly not fit for purpose and a complex mash-up of the good, the bad and plain ugly.



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