JWG research shows legacy infrastructure not up to regulatory challenge

15 March 2012

A new research whitepaper from the JWG think-tank, commissioned by co-location data centre provider Interxion, purports to show that the ICT infrastructure at financial market firms and institutions is not up to meeting the raft of impending post-crash regulations, with over 70% of the hundreds of FIs questioned saying their systems weren’t up to meeting the challenge.

The report looks at the impact impending industry regulation, such as centralised repositories and on exchange OTC trades, will have on the Information Communication and Technology (ICT) infrastructures of banks and insurance firms across Europe. The research is based on interviews with select industry practitioners, a pan-European industry survey of IT decision-makers within banking and insurance firms and a review of more than 4,000 pages of regulation stipulated by the G20 in the aftermath of the financial crisis, says JWG. According to Interxion, which commissioned the research, the full findings will be available at a free seminar in London on 22 March at the Association of British Insurers building in the City of London.

Unsurprisingly, the initial findings claim to show that the implementation of new capital requirements, such as Basel III and Solvency II, and reforms such as the European MiFID II and the European Market Infrastructure Regulation (EMIR) will significantly affect firms’ systems, controls, reporting and record keeping ability – it would be a shock if they didn’t.

The survey aspect of the study found that a massive 71% of respondents did not believe that legacy system upgrades, required to meet compliance objectives, would be complete by the necessary implementation date in 2015, while an overwhelming 90% of those questioned stated that penalties for non-compliance by the end of this year will run into the tens of millions of dollars.

With 40% of respondents saying they lacked confidence in the ability of their overall ICT infrastructure to comply with upcoming regulations, 30% said they would need third-party data centres to fulfil compliance and security requirements – good news for the commissioning agent, Interxion.

Commenting on the research ahead of its full unveiling, PJ Di Giammarino, chief executive of JWG, said: “Many financial institutions are trying to run services on disparate systems whose complexity and inflexibility make it difficult to respond to regulatory demands. But non-compliance could lead to significant fines or even cost firms their licence to practice.”

“The accountability for compliance will most likely lie with IT and operations,” he added, “but there is no evidence that they are engaging with the regulators to set the right standards. There is a clear disconnect between infrastructure practitioners and compliance experts which needs to be resolved fast if firms want to maintain their competitive advantage as well as comply.”

By Neil Ainger

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