Financial IT: What to watch in 2015

HS-software-keyboard-image1.jpg

Here’s our look at the biggest things happening in Financial IT in 2015.

SECURITY THREATS

One of the biggest things we’ll be watching in the world of financial IT this year is cyber security. It’s a growing threat for banks and more than four in five global financial institutions asked by DTCC for its Systemic Risk Barometer reckon cyber security poses the biggest risk.

After numerous attacks on major financial institutions last year, notably one on JP Morgan, there is going to be huge focus on security efforts in 2015.

LEGACY SYSTEMS OVERHAUL

Core IT infrastructure will be overhauled at a large number of banks, or at least the first tentative steps will be taken. A survey conducted by Finextra among almost 100 institutions shows 65 per cent do not think their current core system is fit for purpose, with almost as many planning to undertake some modernisation over the next three to five years.

Yet despite the clear need for an overhaul, there is not much appetite for a “rip and replace” approach. Mitigating the impact of certain elements of the legacy tail will be the focus in 2015.

REGULATION COMPLIANCE COUNTDOWN

Banks will finally have to speed up efforts to comply with a range of new technical regulations. Implementation of key capital requirements will be one area exercising banks, but on the IT side teams will be needing to up their game on BCBS 239.

The Basel Committee on Banking Supervision’s guidance on effective risk data aggregation and risk reporting needs to be met by G-SIBs by 2016, so there is not much time left to get the necessary processes overhauled. Smaller banks - D-SIBs - have longer to comply.

HFT CLAMPDOWN

After all the furore around Flash Boys in 2014, the impetus is now with regulators and we can expect to see a greater clamp down on high frequency trading this year. Whether efforts to curtail some of the activities succeed, it’s likely that 2015 will be a year of heightened regulatory scrutiny on HFT firms.

A 17-member Securities and Exchange Commission panel has been chosen to investigate high speed traders and dark pools. SEC chair Mary Jo White may not think the markets are “rigged”, but the panel will scrutinise the Regulation National Market System, or Reg NMS, which is seen as being the root cause of HFT as it requires investors to get the best price.

SHADOW BANKING RISES

Increased regulation in banking will push the shadow banking sector to the fore, placing greater emphasis on brokerage firms and non-bank lenders to up their credit risk profiling.

A Financial Stability Board report estimates shadow banking assets already represent about half of banking system assets and this is only likely to rise as regulation on banks toughens - Stanley Fischer’s “unintended consequences”. With greater credit issuance in the shadow banking arena, expect heightened risks and all that that entails for financial IT.