Research by consultants Celent highlights the risk that change is being driven by regulation, rather than innovation. The report, Equipping the Front Office for the New Risk Environment: A Survey of Strategic and Operational Priorities, observes that the nature of regulation has changed from something to be complied with or reported on, to an issue that needs to be contended with from a strategy and competition standpoint.

Celent expects regulatory changes such as Dodd-Frank and EMIR derivatives reforms and Basel III, to individually cost between $150 million and $350 million per firm.

According to Celent firms need to move away from the “incremental changes and quick fixes” they have tended to pursue in the past and focus on “multifaceted changes” on the business and technology front. “With firms heavily involved in compliance-led initiatives, which are characterized by tight deadlines and reporting obligations, change teams need to bear in mind that their initiatives must be catalyzed by regulation, but led by innovation and value,” says Cubillas Ding, research director with Celent’s Capital Markets, Finance and Risk Group.

One area where Celent believes future battles will be won and lost is in the manner to which performance and risk measures are deployed and utilized, especially in the front office. The research finds that 60 per cent of firms believe that bringing performance and risk measures in tandem with the front line can be used to shape and facilitate the right risk-taking culture, thereby facilitating better trading decisions, stronger controls, and a more accurate picture of profitability.

In the long run, Celent believes that successful firms will be characterized by smart exploitation of next-generation technologies, coherent risk IT strategies underpinned by strategic principles and sound IT practices and an ecosystem change approach across end-to-end trading and risk workflows.