Splitting banks between retail and investment arms, as advocated by Sir John Vickers in April, is not a 'silver bullet' that will ensure the stability of the UK’s economy, according to Intellect. The IT industry association said instead that the quality of their reportable data is the key.
Intellect has published its "Beyond a retail banking ring-fence" report as its contribution to a review of the banking industry by the Independent Commission on Banking (ICB), which will publish its fianl verdict in September. Breaking up the banks with a retail ring-fence has been heavily mooted by politicians as a way of protecting the retail banking sector from future financial meltdowns caused by bad investment decisions.
The Intellect report says data lessons from the financial crisis have not been learnt. "Data from banks was of an insufficient quality for regulators to spot and mitigate the financial crisis, and there has been no change in this almost three years later," the report says.
It adds, "A lack of a ‘single source of the truth’ represents a significant threat to the health of the financial system, and cannot be solved by a ring-fence."
Intellect says the UK is lagging behind the US in its attitude towards the collation and interpretation of risk data. The Office of Financial Research in the US has been established to improve the level of data available to regulatory authorities.
The UK government was forced to step in and save RBS, HBOS and Northern Rock when those banks were set to go under, threatening lending facilities and the retail investments of their customers.
Intellect, whose members help manage the technology platforms the banks run on, believes "better analytics" and improved reportable data that can be more easily understood by regulators could provide more protection than a retail ring-fence.
Ben Wilson, Intellect head of financial services, said: "A ring-fence would be time consuming and potentially expensive to implement as a result of the complex and intertwined IT systems within banks."
The banks would also have to consider people, processes and what financial products to include alongside the technology, said Wilson. "A retail banking ring-fence is a measure of last resort against financial instability," he said.
Intellect has called for improved standards of data for regulatory and financial reporting, and more regular reporting of risk positions. It says it is unlikely that banks will implement these "large scale reforms" under their own volition, and as such "it is necessary for the government and regulators to mandate change".