Tabb: capital markets compliance spend will soar to $2.6 billion this year
TABB Group forecasts global compliance spending among capital markets firms will increase some 7.5% to 8% in 2015, reaching $2.592 billion , and growing at a similar pace for 2016, driven by global regulations that require institutions to expand coverage, enhance existing capabilities and standardise compliance solutions and processes.
According to a new report from Tabb, capital markets institutions are struggling with the data requirements of new regulations and many “simply do not have the systems or control over their data” needed to make analytics part of their workflow or pass information between different parts of the organisation.
Regulation is “both a challenge and an opportunity” and “those that can transform their bytes (tera and peta) beyond just regulatory requirements will gain the advantage”, says the report.
For capital markets institutions, risk systems are a particular challenge because of the volume of data they have to process at high speed, and because they are computing across business units, client portfolios – and often across jurisdictions that have different reporting requirements.
Legacy IT systems are simply not up to the task: as well as struggling in terms of speed, performance and scalability, they have “proved to be ill-equipped to hand the new challenges facing financial services firms”, particularly the data management issues arising from sharing data across systems.
Regulators are increasing the size and number of fines and other enforcement actions (see graphic) they use to enforce market regulation, while the requirements themselves are becoming more onerous: the US Dodd Frank rules require firms to be able to reconstruct a derivatives trade in 72 hours, complete with pre-and post-trade communications.
All of this means firms need to have an enterprise-wide approach to data governance, integrating trade, operational, risk and customer data “into a platform that provides a single view of the truth”.
That will be music to the ears of the enterprise data management system vendors, but the report says that this is not enough: “without analytics data is a white elephant – it is nice to look at, but expensive to maintain and provides no utility and no alpha”.
Inevitably, this means that the GRC systems space is thriving,but it is also very fragmented, with different considerations for jurisdictions, asset classes and operational considerations – not to mention the different types of institution and their role in the industry ecosystem.
Undaunted, Tabb has pressed on, developing a complex bottom-up matrix model that looks across this ecosystem, breaking it into three broad areas – KYC, communications and transactions monitoring.
Using this model, it reckons the total IT spend on GRC in 2014 was $2.4 billion, with Europe accounting for 43% of that. In 2015 it expects this to grow 7.5-8%, and by a similar amount in 2016.
