FN Outlook for 2004 and Year-End Review: Tidal Wave of Rules Provides Opportunities

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Byline: Jeremy Adams in New York

As a wave of proposed new rules and regulations come in this year, banks and mutual funds will be struggling to keep up with the paperwork. However, some specialists are rubbing their hands with glee at the expectation of making money from a new era of added bureaucracy - and not just lawyers.Software vendors and IT consultants expect a surge in demand for their services as financial firms have to build the new rules into their systems.

Cris Conde, chief executive of SunGard, the software giant that counts almost all of Wall Street as a customer, said: "This exponential increase in regulations is something I have not seen before."

Conde said he recently met the chief information officer at a large US financial services company in need of help fighting regulators on several fronts. "He said there was the Securities and Exchange Commission (SEC), the Sarbanes-Oxley Act and then the 50 state regulators all trying to outdo each other. Across the industry it's the big guys who are asking for help and looking for a partner to guide them through this."

Of course, Conde could just be talking bullishly about his business' prospects, but the evidence backing his argument is overwhelming. New rules proposed in 2002, such as Basel II and Sarbanes-Oxley, have either arrived or are close to doing so.

The relentless pursuit of financial wrongdoing throughout 2003 has increased concern among many business leaders that their compliance needs tightening up.

The mutual fund industry is undergoing the type of scrutiny that Wall Street's banks were enduring a year ago. Investment banks face further changes to the way they do business, including proposals to reform equity underwriting practices. Hedge funds, until now unregulated, are coming under the microscope.

As each new law and rule is proposed or established industry practice is questioned, company executives need a handle on how to react. Michael Haney, senior analyst at Celent, the IT consultancy, said: "We are seeing a tidal wave of proposals for rules, regulations and guidelines written in a certain tone and then being interpreted by the regulators. Banks are trying to interpret the rule themselves and not wait for the regulators."

As the meaning of the rules becomes clear, the software firms will move in with sets of new products.

With so many areas undergoing reform, and the work in the early stages, it is impossible to estimate how much financial services groups will spend on IT services to combat increased regulation. …