Financial institutions see regulatory compliance as the single most important driver of business strategy for 2004, according to a survey announced by Sun Microsystems. Of those surveyed, 64 per cent cited compliance with legislation such as Basel II and Sarbanes-Oxley as ‘very important’ and 26 per cent as ‘important’. Furthermore, 55 per cent of financial institutions stated that regulatory compliance would be a ‘distraction’ from their core business in 2004 as they take steps to meet legal requirements.
The survey also revealed that 83 per cent of financial institutions believed technology investment would be higher in 2004 than it was in 2003. “2004 will be a defining year for regulation in the financial services industry. Not only is Sarbanes-Oxley coming into force, but in order to meet Basel II in 2007 financial institutions need to put the building blocks in place now,” said Martin Brown, UK head of finance, Sun Microsystems. “Firms are having to look at their entire network architecture to meet these regulations. They will need to identify, discover, collect, aggregate, analyze and report on financial activity to a much greater and deeper degree than they have done in the past.”
“Putting aside the legal requirements, Basel II and Sarbanes-Oxley are encouraging good business practice – a firm should know what its exposure is and be able to base decisions on a complete set of historical data,” added Brown. “Because of regulation, sophisticated data mining tools, archival and retrieval systems and security enabling software are now top of many financial sector organizations’ priority lists.”
Under Basel II, banks will be required to set aside capital to cover contingencies relating to operational risk. The final rules, which come into effect in 2007, will require banks to have collected and aggregated about three years’ worth of data so they can effectively monitor and analyze their risk under internal programs. Sarbanes-Oxley legislation requires chairpersons and Chief Financial Officers to submit documents attesting to the accuracy and soundness of their financial reports. Executives have to certify that everything is taking place in accordance with the standards of proper reporting and accounting.
The survey was conducted at the Sun Live for Financial Services event held in London during October 2003. Independent research company 660 elicited opinions from representatives of banks and other financial sector firms attending the conference, as well as Sun partners from the consulting and independent software vendor communities. The survey was designed to gauge opinion on strategic business direction, technology goals, spending plans, internal and external resourcing and interest in different IT applications and services.