Financial services companies to spend $430bn on IT next year

IT market analysts International Data Corporation (IDC) said that banks alone will spend $215bn on IT next year. It has predicted more than 7% growth in IT expenditure among financial services companies in Asia/Pacific, Latin America, the Middle East and Africa. Growth is expected to "remain well below 5%" in the European and North American markets.

"Expect to see projects around risk and compliance, core and infrastructure modernisation, customer experience, and security, which are lifting our otherwise tempered forecasts," Karen Massey, senior analyst in banking at IDC Financial Insights said.

IDC has predicted that insurance market IT expenditure will reach $100bn in 2014 with further increases at a 4% compound annual growth rate anticipated through until the end of 2017.

Separately, market analysts Ovum also predicted that businesses involved in both the capital market and the financial services sector in general would spend more on IT. Capital markets companies will invest in delivering cloud-based services following "improvements in cloud security", it said.

"Cloud services adoption in the capital markets has increased in the last few years," Rik Turner, senior analyst in financial services technology at Ovum, said in a statement. "In the future, there will be an even faster uptake of cloud services. Although the process of migrating services to the cloud is often driven by cost constraints, there is also now a dimension of preparing a platform for the sector’s future evolution."

A move to comply with new regulations, the FATCA tax data gathering regime and problems with IT outages will drive the increase in financial services companies' IT expenditure as the businesses look to reduce risks and meet compliance obligations, Ovum added.

One of the main issues that is thought to have held back EU-based financial services companies from entering into outsourcing deals with cloud suppliers is around how those businesses meet their obligations on data audit rights under those arrangements.

Under the EU Markets in Financial Instruments Directive (MiFID), financial services companies that outsource data processing activities are generally required to ensure that regulators have 'effective access' to 'data' and 'premises'.

The Dutch Central Bank (DNB) earlier this year confirmed that Amazon Web Services (AWS) is a suitable platform for financial services companies in the Netherlands because the cloud provider enables the regulator to supervise the activities of those companies using AWS.

The DNB previously concluded an agreement with Microsoft in relation to data audit rights for businesses in the Netherlands that use the technology giant's Office 365 cloud platform.

Financial services law expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com, previously said that it was not "the most effective way forward" for cloud providers to have to negotiate data audit rights with every regulator in each jurisdiction across the EU.

"More discussion and debate is needed over the correct interpretation to be given to the provisions of MiFID and implementing laws which require 'effective access' to premises," Salmon said. "Do on-site audits really give regulators more visibility over the quality of processing activities undertaken by an outsourcing provider? Even if in a perfect world they may, do regulators really have the resources to enable them to effectively inspect cloud resources located outside of their own jurisdiction?"

"The best way forward may not be at the negotiating table but through a robust legal discussion which backs the idea that effective access to premises may mean digital and not physical access," he said.