Can technological innovation survive the need to comply?

By Steve Young | 27 February 2015

As the financial markets continue to strengthen, one might assume that this is good news for technology vendors. When any financial crisis begins, one of the first budget items to suffer is always IT spend. Traditionally, as a recovery gathers momentum, so the technology coffers begin to swell once more. This time around, however, the outlook is a mixed one for technology vendors.

Generally speaking, IT spend is relatively flat at the moment as firms try and assess the medium term financial outlook. Instead, firms are seeking to derive better value from their IT infrastructures and this is increasing the adoption of cloud-based solutions, irrespective of the size of the business. Firms also have to balance their desire for technological innovation with the need to comply with new regulation.

The regulatory challenge

Indeed compliance continues to be a challenge for firms, particularly in Europe where the barrage of new requirements from the regulators continues apace. Many firms are also trying to address some key strategic issues, but their ability to optimise this work is constrained by the ever-evolving regulatory environment.

In addition to compliance, innovation has been hampered by the lack of a robust and innovative supplier market. As a result of the downturn, the vendor market consolidated and placed much of its focus on servicing its existing clients. Truly innovative new products were few and far between.

We are still seeing the effects of this in the market today. Firms constantly need a business driver to innovate and regulation should be viewed as one such driver, or even an enabler to innovation, if approached in the right way. For example, many firms are now benefitting from improved CRM as a result of suitability requirements, or increased management information stemming from the new regulatory reporting requirements.

Aligning compliance with customer expectations

Many firms are now trying to align the need for regulatory compliance with customer expectations of service quality. In theory this should be possible, as regulation is commonly introduced for the benefit of the end consumer.

It is clear that firms that can prove they are efficient and effective in implementing regulation and satisfying the regulator should be in a position to improve many elements of customer services. For example, in the UK, the focus on suitability has led to many firms introducing technology and process to improve the whole customer experience, quality of service and advice.

There does not need to be a conflict between regulation and servicing customers.  Much of the current regulatory flow is only trying to enforce standards and expectations that non-financial firms would take for granted. Financial firms need to adopt a longer-term perspective and instil the principles of the regulators at the very core of their operations. Firms would then find that the outcomes benefit all parties.

Innovation begins to return

Innovation is starting to return to the City, albeit very slowly. Some areas are seeing more new products and suppliers come to market. Customer Relationship Management (CRM) is one area that has evolved dramatically within investment management. Client reporting and performance measurement are also showing higher levels of innovation. It is no coincidence that these three functions are all absolutely key to providing a leading edge and high quality customer experience.

For smaller firms, the move to cloud computing is good value.  Not only do services such as Office 365 provide great flexibility in the way that a firm can be organised internally, but the cloud also enables businesses to benefit from cheaper and smarter applications. These applications enable new services to be delivered to the client faster and cheaper.

If we look at the developments in client reporting systems, no longer are these applications multi million pound investments that only the very large firms can afford: these services are now available on a pay-as-you-go basis. If you look at the challenge to banks from new entrants such as money payment services or peer-to-peer lending, we find that these market participants have only arisen because of technology innovation.

Technological innovation and compliance can co-exist in the City. It only takes a little imagination and a different perspective.

By Steve Young, CEO, Citisoft Plc

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