Banks that have completed core banking transformations are better placed to meet the regime change that will be demanded by Basel III, says technology analyst Ovum.
Alex Kwiatkowski, the London-based author of a new report, 2011 Trends to Watch: Retail Banking Technology, said that, although the transition to Basel III was not expected to be completed before 2019, retail banks needed to start laying the technical foundations next year.
Banks which had "papered over the cracks" of their IT systems would now see those cracks "broaden into fissures" as they laboured to develop systems which would allow them to comply with the changing regulatory landscape.
"Those banks with a competitive advantage are the ones with the foresight to see that papering over the cracks was not the way to go. They will see that pay off in the long term," he said.
Banks which had completed core systems transformations operated with greater efficiency and could effect change without taking "forever and a day". Even for them though the Basel III reforms would prove "no walk in the park", Kwiatkowski warned, especially as banks weren't going to suddenly boost IT budgets or conjure up scarce IT skills.
Instead Kwiatkowski warned that banks would need to work within their existing budgets, juggle projects, concentrate on mandatory IT reform, and ensure the business case for discretionary IT projects really stacked up. Bank IT departments however could not afford to focus exclusively on the reform agenda, but needed to deliver innovative customer-facing solutions in order to remain competitive.
"There is a conflicting pressure. You can't just say to the regulator, 'Oh, look, I've got Basel III complete but the rest of my business is declining'," he added.
As part of the preparation for Basel III, banks needed better control and oversight of their operational data, a challenge which was compounded by the continuing appetite for bank mergers, according to Kwiatkowski.
"Westpac is still talking about the merger with St George that happened in the back-end of 2008. That was two years ago and is still a work in progress."
Ultimately, he said, banks would have to put in place information systems that would allow them to provide regulators with a complete report of every asset the bank holds within 36 hours.