Wave of Euro-regulation to spark outsourcing

The next wave of European banking regulation will lead smaller financial services players to outsource or use application service providers in order to cope with the increasing compliance demands.

MiFID (Markets in Financial Instruments Directive) aims to create a single European capital market and will apply in 25 EU states from April 2007 but there have already been predictions that financial services organisations will have to spend €1bn on IT to get ready for it.

Analyst Financial Insights predicts that as a result of the directive, financial services companies will have to think hard how to reinvent themselves, "given the disruptive effects from a business and IT point of view and the related technology investment needed to comply".

The analyst group said MiFID is likely to create growth in multilateral trading facilities and electronic trading networks. It could lead to a wave of consolidation with mid-sized investment banks looking to achieve economies of scale and scope.

It predicts increased demand for outsourcing and application service provider (ASP) services to enable smaller participants to cope with the new regulatory requirements and the complex market structures that will follow.

Simona Macellari, research and consulting manager for Financial Insights EMEA, said: "There are significant new opportunities but also major threats offered by MiFID. We are likely to see considerable consolidation by both market participants and technology vendors as firms jockey for position ahead of the implementation date."