ICB Report Recommendations: Promoting Financial Stability

There are many positive aspects that emerge from the Independent Commission on Banking (ICB) report and its suggested plan of action. However, a huge amount of effort, time, focus and expense will be required to implement these changes – the ICB itself suggests the cost to banks will be between £4bn-£7bn.

Among the recommendations, divided into those promoting financial stability and those promoting competition, a key one requires banks to segregate commercial banking from their investment banking activities.

But, given that many banks have been following an efficiency drive in recent years, this separation – or ‘ring-fencing’ – will likely present major technological and process challenges.

To complete these structural reforms by 2019, banks will face some big challenges from an operational and infrastructure perspective. IT, including vital, large banking and payment systems, will have to be restructured and/or re-engineered and banks will need to leverage business and IT processes that they may no longer be sufficiently familiar with.

While strategic outsourcing, cost optimisation and organisational realignments over the years have turned banks into more streamlined businesses, they will certainly need major technology and domain support to effect such significant changes.

Capital separation is another recommendation to promote financial stability which, while ensuring that investment banks cannot use retail funds for speculative trading, also means that banks have less capital to invest and grow their business. Liquidity is another issue raised in the report, as the markets need more transparent and concrete data to ensure that this will not provide any room for systemic risk.

Better transparency and support for automated account switching also forms part of the recommendations given by the report to encourage competition. The time and effort of switching accounts are perceived to be too high.

It is imperative that banks turn to trusted partners to design and implement these massive changes in order that they meet new structural reforms, while retaining their competitive edge. However, this calls for much more than just technological expertise. Banks need a partner that brings deep industry expertise and understands their domain and its complexity. These are challenges unique to the banking industry and require both sector knowledge and experience in managing integration and separation projects.

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