Are there reasons to be mildly optimistic about spending in the financial technology sector? A recent Bloomberg-sponsored survey of IT executives at major financial services firms found that more than three quarters of them, 76%, fully intend to increase IT spending over the next 12 months. Only 17 percent said they will cut spending and 7 percent of respondents predicted that their spending would not change.
As for what IT executives will purchase, managed solutions rank high among the respondents’ preferences with 55 percent of them saying that they are shifting more of their overall capital expense to this area. One third said they would not be moving in this direction while 12 percent said they are uncertain about managed solutions. The survey was conducted at the recent Bloomberg LINK Enterprise Technology Summit seminar, attended by more than 100 Chief Information Officers (CIOs) and IT decision-makers.
Interestingly, cloud computing provided a silver lining as it ranked the highest among the infrastructure investment areas that yielded the most return on investment (ROI) over the past year, according to 45 percent of survey respondents.
On the issue of IT innovation, though, most executives expressed a need for solutions that “process more data, more quickly, cheaply and reliably,” according to Bloomberg. Yet there is an interesting undertow cited by the executives that might be spurring the need for more innovations in data processing. An overwhelming 84 percent of IT executives said they have been increasing their spending on regulatory and compliance systems over the past two years; 5 percent had cut spending in this area and 11 percent said spending had remained the same.
This is a strong indication that spending among these executives has heavily favored IT in support of regulatory and compliance processes. In addition, with more regulations to come requiring reviews of data frozen in time, firms will need a lot of help not only in processing data, but managing, virtualizing and storing the data that meets their new regulatory obligations.
New data demands, however, will not be the only IT overhaul inspired by the regulators.
For instance, the adjustment to over-the-counter (OTC) derivatives clearing will be no picnic. TowerGroup analyst Stephen Bruel points out in an FTF Q&A that mandatory, centralized clearing will require a major review of the entire post-trade process.
“It will essentially affect the whole post-trade process—payments, settlement, reconciliation and risk management,” Bruel says. “The changes that will be required include connectivity—depending on what role you play, you will have to connect to swaps data repositories (SDRs), and you’re going to have to connect to the clearinghouse, the SEFS (swap execution facilities).”
But, has this intense IT focus on regulatory compliance among these executives come at the expense of innovation both in the creation of financial instruments and the technology needed to support them?
My guess is that innovation has taken a backseat to compliance. However, I suspect that innovation will make a comeback despite the regulators and their unintended, chilling impact upon spending for new areas of IT. It all hinges on how soon the regulators can deliver the new rules of the game and how much frustration IT executives can bear. Until then, the industry appears to be in a long holding pattern.
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