In September 2008, the global financial system broke, wiping out billions of pounds and triggering the loss of hundreds of thousands of jobs and the collapse of previously venerable institutions.
In the UK, the forced sell-off of HBOS and the nationalisation of Bradford & Bingley were just some of the most visible manifestations of a global meltdown that also triggered the demise of US investment giant Lehman Brothers and the bailing out of European bank Fortis.
And with a Presidential election just weeks away, the impact of any rescue plan for the US financial system is still far from predictable.
But one thing is clear. Despite the chaos, most parties agreed on the long-term solution: tighter regulation.
“Before the credit crunch bit, Basel II, and more specifically the SEC’s Regulation AB, were the relevant standards relating to the disclosure and reporting of risk and asset-based securities data,” said Mark Leavey, a financial services industry specialist at information management software, Informatica. “With the bias of hindsight, it is clear that these did not avert the current crisis.”
Even the UK’s Conservative party, traditionally no fans of government intervention in business, has called for stricter rules in the City. “Yes, we believe in regulation,” Tory leader David Cameron told his party at its annual conference.
Deciding what new regulation is needed must wait until the dust has settled and the full extent of the damage – and its causes – can be evaluated. But IT departments in the financial services sector and related industries can expect to see their already considerable regulatory obligations expand soon.
Combine this with the economic fall-out from the implosion of the financial services industry, and the outlook is bleak for IT shops in that sector and – to a lesser degree – all sectors. CIOs want to innovate, but with IT budgets shrinking and compliance costs set to rise, will there be any money left for new projects?
Conversely, there may be an opportunity. A report published in September found that only 3% of UK CIOs have a place on their organisations’ board of directors. A greater role in compliance could buy IT a more pivotal role in corporate oversight.
The experts’ response
A wave of new regulation will increase IT’s workload but also its responsibility, says Professor Edward Truch, Chair of BCS Management Forum and director of KnowledgePartners
All the indications from the US are that the financial services industry is going to see greater regulation. US Treasury Secretary Henry Paulson and Gordon Brown are talking about global regulatory frameworks. These requirements will increase the amount of reporting required, and much of it will need to be real-time.
The whole banking crisis may raise some questions around IT ethics, and how IT governance relates to corporate governance. In the future, IT professionals may need to take more responsibility to ensure that their organisation is meeting overall corporate governance requirements.
Business process automation will become more widely adopted as a result of the uncertainty, says David Sherriff, COO at software provider Microgen
Many of the financial institutions that collapsed did so due to the lack of transparency across their operations and their inability to fully comprehend their commercial liabilities and associated risk.
The FSA will no doubt move to ensure that financial institutions adhere to strict rules of conduct, underpinned by accurate and consistent accounting. For many, this will mean further automation of their business processes as there is still a heavy reliance upon manual processes and spreadsheets – a fact that can only have exacerbated the current crisis.