The survey of a broad cross-section of 92 financial markets participants, finds IT budgets and staff recruitment on the rise for the second successive year. But a shared sense of optimism is tempered by a hard-edged determination to see a measurable return on investment, implying a continued tough market for the fintech vendor community.

The sheer weight of the compliance burden and the systems integration challenge it entails has put a reality check on the ambitions of institutions responding to this year’s survey. In 2004, 60% of organisations considered regulations an extension of existing systems and process. This year, only 46% agree with the same statement.

Fewer capital markets firms see an opportunity to use compliance to create internal value, down from 45% last year to 36% in 2005. Only 29% believe they can create any external value from regulations, down 10% over the last twelve months. Indeed, more respondents than ever before now view regulations as an administrative overhead with minimal benefit to their organisation.

The biggest pure IT change over the last twelve months has been the growing support for Linux within wholesale finance organisations, from 27% in 2004 to 58% in 2005.

"Regulatory compliance and risk management are at the forefront, but the pressure for IT to deliver measurable business returns is also growing," says Paul Penrose, head of research at Finextra. "Finding ways to meet regulatory demands for stricter compliance, while managing business expectations for an improved return on IT investment, will be the real challenge for CIOs in the year ahead."

The full report, Financial Technology Strategies 2005, is available to order online: Financial Technology Strategies 2005.

It will be released at Finextra's third annual Finexpo City Technology Strategies conference and exhibition, www.finexpo.com/cts/, taking place at Cabot Hall in the heart of London’s docklands on Thursday 27 January.