Compliance: a money-spinner for Tier-1 banks?

The huge spend required for some of the compliance programs for European banks seems set to divide banks into two extremes:

- small and medium banks who simply cannot afford it, and may decide to get out of certain businesses or buy outsourced services

- big banks who can: and may even end up making money selling white-labelled services to the "lesser mortals"!

Compliance requirements like OTC clearing rules for capital market players, and Basel III and SEPA for banks have a large impact footprint across the IT and operations landscape. Banks will weigh the costs and other pros and cons of the following main options:

-          getting compliant with existing systems

-          building a new (in-house) system from the ground-up

-          implementing a standard package solution (if available and if it helps business)

Now that the compliance deadlines are in place, and IT is being asked to put a number on these compliance projects, one can expect the following:

-          Tier-1 banks keen to make the most of this spend are tying together key transformation programs or legacy renewal projects along with the compliance project, perhaps even expecting a return-on-investment in medium-term

-          Tier-1 players who decide to spend on compliance programs may as well make money selling white-labeled compliant platforms and/or services to the Tier-2/3 players – e.g. BCG's new report on Global Capital Markets 2012 indicates this is likely to happen in the case of OTC clearing rules!

-          Given a spate of cost reduction and staff cuts over the last few quarters, big banks will have to look for IT providers and outsourcing partners to help achieve these compliance / transformation projects.

-          Given that compliance-related spend is unwelcome additional spend (not likely to affect existing jobs) this is also a chance for relatively conservative Continental European banks to introduce sourcing/offshore approaches given lower internal or political barriers involved.