Financial services businesses are faced with an ever-increasing raft of regulations and laws affecting their business. This inevitably requires a significant investment in IT to maintain compliance given the day-to-day dependence on IT in running the business.
The difficulty with this comes with the obvious cost and speed needed to implement these changes, but the potential uncertainty around the requirements needs to be navigated, and accordingly what actually needs to be done. It's clearly difficult (if not undesirable as well) to begin to implement significant change without the certainty of the regulatory requirements themselves.
This year though we can expect some significant IT investment as some of the requirements crystallise while others will still be in the process of change. But the requirements won't just manifest in pure operational/functional change, they will need to flow through into greater transparency, touching the full range of financial services IT and supply relationships.
For financial services businesses that have outsourced an element of their IT, careful reading of their contracts will be required to ascertain the degree to which the agreement places the burden for the cost of continuing compliance on the service provider.
Big data and social media fuels customer experience
Talk of the impact of big data and the use of social media has been around for some time. We anticipate that the impact of its use will grow significantly in 2014, in all aspects of financial services from fraud detection and prevention, through to focused and enhanced customer offerings.
Using the data isn't quite so straightforward, though, and it's important to make sure that the data can be used either not at all, or in the required manner. This means appropriate licence management to prevent any infringement which is likely to be not only costly and difficult to resolve, but also painful from a publicity perspective. We anticipate that data providers will follow in the footsteps of some of their software counterparts even more aggressively to monitor and chase down any perceived misuse of their data.
Social media, mobile device use and app-based customer interaction will increase, requiring both an increase in investment to maintain a competitive offering, but also a keen eye on how these routes to the customer are used to mitigate against any potential liability arising on the part of the financial services institution.
Beyond the cloud to commoditisation
There's no such thing as "the" cloud, but a series of steps on the spectrum from a managed hosting arrangement to a fully public non-dedicated server, app on demand, access over the internet service, and everything in between. What this means is that the cloud market is maturing and will continue to do so, both in terms of what can feasibly be done in a cloud for financial services businesses (given the regulatory constraints and the sensitivities around data) and in respect of the legal terms applicable to cloud-based services.
Moreover, we anticipate that as software-as-a service (SaaS), infrastructure-as-a service (IaaS), and platform-as-a service (PaaS) become more prevalent, so we will see a move to even greater service offerings linked to a cloud, essentially some form of everything-as-a-service.
Virtualisation across a range of services and IT functions may well increase to free up space and operational costs. How this plays out in contract terms will be interesting to watch – cloud suppliers have so far been keen to promote the importance of standard terms to match a standard offering; as more and more technology services can be commoditised, we can expect a similar approach across a wider range of services and their associated contracts.
Duncan Pithouse is partner at law firm DLA Piper