Regulations such as Europe's Markets in Financial Instruments Directive – or MiFID – came in this year, marking a shift towards a single European financial market. Not surprisingly, the legislation drove a lot of technology investment over the course of the year.
So the sector is, among other challenges, dealing with increased competition as barriers are lifted, ever more sophisticated fraud techniques and trying to phase in new payment technologies.
Here is our pick of the top 10 financial services stories of the year:
Dutch bank ABN Amro was the hotly pursued subject of a long-running takeover battle between Barclays and Royal Bank of Scotland (RBS). An RBS-led consortium emerged the victor, paying £48bn in total for the bank. But the buyers now face the challenge of IT integration as they slice up the business. A three-way split of the bank by its new owners - RBS, Santander and Fortis – could simplify the IT integration challenge ahead, analysts have said. The new owners are set to reveal their plans in the new year.
The long-awaited legislation, nine years in the making, continues to pose a challenge for many firms that have been forced to retrain staff and overhaul technology. MiFID is intended to make financial trading across borders easier and fairer by promoting best execution for trades and improved record keeping. Industry observers predicted that firms will not be ready in time. It's early days, and so far there have not been any prominent foot-draggers, while regulators are yet to clamp down on compliance. Meanwhile, traditional exchanges, such as the London Stock Exchange, ramped up their trading platforms, as the legislation paved the way for increased competition from new multi-lateral trading facilities.
London Stock Exchange rolled out its new trading platform TradElect with much fanfare in June, and then revamped it in October. The bourse said the most recent upgrade has improved processing speed by 40% and systems capacity by 70%. LSE also acquired Borsa Italiana to boost its market presence and create a combined group built on high-speed electronic trading, and can handle 4,200 trades per second.
But the new platform couldn't prevent an outage that stopped trading for the first time in seven years. But TradElect was not the culprit, and the exchange laid the blame squarely at Infolect, the exchange's market information feed which is accessed by most of its member organisations.
One side effect of MiFID is that the legislation permits investment firms to operate multi-lateral trading facilities (MTFs). As a result, new MTFs have mushroomed, with a flurry of announcements of new consortium-led initiatives. Turquoise, formerly called 'Project Turquoise', is an example. A consortium of nine investment banks are building the new exchange to challenge the dominance of stock exchanges in trading of cash equities.
During 2007, the yet-to-be launched MTF faced delays and denied rumours of internal bickering over its technology platform choice and the CEO post. Following months of industry speculation that OMX Group would be the provider, the MTF chose Cinnober for its trading platform technology and appointed Eli Lederman from Morgan Stanley as its chief executive officer. Yann L’Huillier, CIO at the Boston Stock Exchange, has flown in to take the technology reins.
Banks across Europe are gearing up to process single European payments area (SEPA) transactions in readiness for the Eurozone clearing system, which comes into effect in January. SEPA aims to harmonise national payment systems to provide an efficient and simple way to make cross-border credit transfers, direct debits, and credit and debit card payments in Euros from any country in the EU. Under SEPA, the holder of a bank account in one euro zone country should be able to exchange payments with other euro zone countries as easily as if they had an account in the country concerned.
The impact of SEPA is far-reaching: Banks are rebuilding or duplicating many of their core systems; businesses need to update their databases and financial systems to incorporate new payment details for customers and suppliers; countries across the European Union need to introduce a common legal framework for international payments, called the Payment Services Directive. SEPA will also result in a wave of mergers and acquisitions, as the biggest banks who already dominate foreign transactions consolidate their market presence. For banks, SEPA is a step change in how they run their payment operations and many are using it as a driver to overhaul their systems.