Financial institutions may be spending more than they need to for compliance initiatives, according to a recent study. Financial institutions are focused on the tasks of protecting data and keeping current with regulatory requirements, rather than on organization-wide data management policies, the study says. As a result, they are overspending on regulatory compliance. Some industry experts believe, however, that the rise in IT spending is necessary.
According to the survey, conducted by business information provider Economist Intelligence Unit (London), financial services firms are not using resources for compliance efficiently. Institutions are wasting their budgets by duplicating efforts on compliance and risk management, according to Chris Formant, executive vice president, financial services, BearingPoint (McLean, Va.).
"We found duplication of effort," says Formant. "For example, a compliance person is spending money in order to comply in a certain way, and ... someone else is spending independently of that person to try to affect their compliance."
Because most financial institutions organize data by department, each department often complies with the same regulations independently, duplicating spending on technology, Formant explains. "The financial services industry usually runs and manages its data in silos, and because of that [firms] are having trouble complying and converging their data into one," says Formant. "Everyone is doing their best and trying to comply, but for that reason we are finding a significant duplication in effort."
According to Tim de Lisle, managing principal of Corigelan, a Chicago-based consultant group, IT budgets must logically increase to meet legislative requirements. "Traditionally, financial institutions have needed to spend more than the average institution because of the legislation that they are under. The impact [of non-compliance] could be millions and billions of dollars, so they need to spend so they can protect," says de Lisle.
Still, he agrees that banks may not be planning their IT budgets carefully. In order for the industry to prevent overspending, firms need to have a logical plan in place. "There is a lot of hype out there," says de Lisle. "There is erroneous spending on what firms do not need. A lot of financial institutions aren't doing what they should."