Compliance projects in the banking industry risk being "compromised" because IT teams are being sidelined by finance and internal audit departments, according to professional services firm KPMG.
The warning comes as financial companies worldwide invest hundreds of millions of pounds in revamping IT systems and financial reporting procedures to comply with regulations including Basel 2 and international financial reporting standards. The regulations aim to make banks more financially transparent and improve their ability to assess risk. They will come into force over the next few years.
Malcolm Marshall, partner at KPMG, said compliance projects are generally run by managers in the finance and audit departments and do not always involve the IT director and their staff at the early stages of the project.
As a result, proposed systems may duplicate existing technology or "run against the grain" of a firm's IT, said Marshall.
"When IT leaders have not been involved, compliance will be harder to achieve. The quality of compliance might be compromised," he said. Marshall highlighted the importance of getting the message about compliance to the whole IT department.
"Up to 20%-30% of IT staff time spent on compliance projects could be wasted unless compliance and IT staff work in partnership," he added.
Dennis Keeling, chief executive of the Business Application Software Developers Association, agreed. "Finance and IT departments have been moving apart for some time but need to work more closely together," he said. Risk specialists often have limited IT knowledge, he added.
A spokesman for insurer Norwich Union said it was crucial for IT departments to be involved with compliance projects from the start.
"Our IT departments have a very significant involvement in our group-wide financial reporting and regulatory project," he said. "Their early involvement and extensive user-testing is essential in making sure we meet changes in the international reporting arena, as well as financial regulation requirements.
"It is vital that IT departments work together with finance and compliance departments. There are lots of different pieces to the regulatory jigsaw."
Analyst firm Datamonitor has predicted that IT spending on Basel 2 compliance by European banks will reach about £1bn in 2005.
Other regulations, such as international accounting standards and Sarbanes-Oxley, also require significant IT investment. Last month, the chief technology officer at Barclays Bank said that regulatory compliance programmes take up 40% of the bank's IT spend, leaving little for product development.
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