IT spending by wholesale financial services institutions has increased significantly this year, particularly on risk managment and payments systems, according to a global study by Datamonitor.
The survey of 100 financial markets institutions in the US, UK, Germany, France, Benelux and Switzerland found that 2007 has already seen a significant increase in IT budgets.
The report found that investments and securities services firms are looking to better manage, hedge and mitigate risk by investing heavily in risk management technology, while fund managers are increasing IT spending on payment systems.
Amit Shah, financial services technology analyst, Datamonitor, says: "The necessity to offer superior technology and connectivity options to customers is driving heavy investment for these segments as competition heats up in the space."
Shah says institutions have realised that technology investment is vital for long-term sustainability so for technology vendors, opportunities will continue to present themselves in 2007.
Shah expects further strong uptake of electronic trading, particularly as firms move to comply with upcoming regulations such as Reg NMS and MiFID.
There will also be increased investment in algorithmic trading systems, due to growing demand from customers and the need to keep up with competitors. Hedge funds are also using the need for increased revenue and tracking liquidity to invest in new systems.
The trend of outsourcing elements of IT infrastructure - rather than the whole lot - is set to continue in 2007. Shah says this is especially true within the hedge fund sector as many firm are not able maintain an IT function in-house. "This opens up a lucrative market for technology vendors to offer ASP risk management solutions targeted at hedge funds," he adds.
Key drivers to outsource back office services remain the same as in 2006, says Datamonitor, but many UK firms in particular have become increasingly cautious about outsourcing to India following a corporate and customer backlash. "The key reasons for recent customer backlash in the UK centres around data security and confidentiality as well as communication problems between customers and call centre staff," says Shah.
Phishing and anti-money laundering initiatives have also emerged as key focus areas, says Shah, with around 38% of all respondents in the study citing security measures as of "paramount importance".