Four major investment banks are to outsource the storage of compliance data, helping to reduce costs through a shared IT platform.
Barclays, Credit Suisse, Goldman Sachs and JP Morgan Chase signed a memorandum of understanding (MOU) with post-trade services group the Depository Trust & Clearing Corporation (DTCC) this week, with the aim of creating a shared repository for client reference data.
The DTCC said the jointly developed data platform will enable banks, broker dealers, asset managers and hedge funds to store information including regulatory compliance data in a central library.
“Our ultimate aim is to support the industry’s call for a comprehensive, centralised platform to effectively manage virtually all client reference data,” said Michael C. Bodson, DTCC president and CEO in a statement.
Increasing compliance costs is a significant issue for financial institutions as they attempt to meet a wide range of regulations. JP Morgan recently announced that it had grown its compliance IT spend by 27 percent since 2011 in order to meet demands. Banks without necessary controls have in some cases received strong penalties from regulators. HSBC, for example, was forced to a pay a $1.9 billion (£1.2bn) anti-money laundering fine in last year.
Commenting on the outsourcing deal, Steve Grob, director of group strategy at financial services provider Fidessa, said that banks are becoming more willing to externalise some of their IT requirements in order to reduce non-differntiating costs such as those around compliance.
“The use of white labeling, software-as-a-service and other third-party models have become more palatable, provided two conditions are met,” Grob said. “First, that the right level of cost and competence is maintained. Secondly, that the reputation and inherent brand value of the firm is not damaged by external providers.
"For large firms, the key is making the right decisions about where to innovate and where to commoditise. Getting these decisions right is critical for the larger players who need to find ways of managing multiple business lines to an acceptable level of competence as cost effectively as possible.
"But, the more that can be pushed into commoditised infrastructure, the more they will be able to meet the fundamental requirement of growing revenue faster than cost.”