Bank ringfencing will cause technological upheaval

By Nicola Brittain
22 Dec 2011 View Comments

The ringfencing of retail from investment banking activity in the UK, as announced by chancellor George Osborne earlier this week, will cause massive technological upheaval, according to one expert on financial technology.

The announcement by Osborne follows the release of the Vickers report in September and aims to protect deposits and overdrafts of ordinary customers from risky activity conducted within investment banking divisions following the financial collapse of 2008.

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Ben Wilson, head of financial services of ICT advisory body Intellect, explained that this separation will reverse much of the datacentre integration work that bigger banks have undertaken over the last few years during the mergers of RBS and NatWest, and Lloyds and HBOS, for example.

"It will require the recreation of two datacentres at every bank and is a really significant job," he said.

Many banks have developed their technology systems layer by layer, over a period of 20 to 30 years, with many layers having been created to a bespoke set of requirements using now arcane coding practices.

Changes to core systems can take years to implement and will require significant work that Wilson likens to "open-heart surgery".

"Just ensuring the technology can manage contactless cards has been a significant job that has taken several years for the banks to implement," he said.

Wilson went on to say that one way of managing the transition would be to create an operational subsidiary to keep systems running while the databases are being separated.

Other legislation being introduced to the banking sector includes Basil 3 – this aims to strengthen capital requirements and introduce new practices around bank liquidity and leverage.

To meet these requirements, banks will need to improve their approach to risk management, and risk management requires the implementation of risk analytics technology.

"There is not enough work being done around collating risk managemnent data," said Wilson.

"Banks must reform the way they treat risk data to ensure they use it to contribute to a stable system. At the moment the data is not granular or accurate enough," he added.

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