Wednesday, 6 August 2014

All that matters is not getting fined

Spending all your time firefighting

A common question we at IBS ask is, why do banks continually plump for older core systems?

Why do so many other banks focus on the time-honoured activities of patching up their existing software rather than tearing it all out and starting afresh?

There are a number of reasons for this, and they are well enough rehearsed.

But it’s increasingly obvious that regulatory risk seems to be dominating the other factors at present, and it’s worth applying the words of HSBC’s chairman, Douglas Flint, from earlier this week, to the core banking space. On releasing disappointing results, Flint noted an ‘observable and growing danger of disproportionate risk aversion’ which is harming the banking business at present. Moreover, he added that ‘the demands now being placed on the human capital of the firm and on our operational and systems capabilities are unprecedented’ as the bank contemplates meeting the 2019 deadline for ring-fencing retail and commercial banking.

Last year Jamie Dimon, the CEO of JP Morgan Chase, made similar comments, writing: ‘Adjusting to the new regulatory environment will require an enormous amount of time, effort and resources.’ He added ‘we fully intend to follow the letter and spirit of every rule and requirement,’ which would be an excellent sentiment if the bank had any choice in the matter. It hired an extra 3000 staff in its compliance department last year, spending another $1 billion in the process. It also beefed up its AML capabilities, ‘deploying unprecedented resources, dedicating senior managerial time and prioritising efforts to build and maintain an industry-leading AML programme’, Dimon said.

It’s hard to imagine any enterprise-wide system replacements getting underway when this is the kind of concern global bank chairmen have.

It used to be said that nobody ever got fired for buying IBM: now all that matters is not getting fined.

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