UK banks will have to spend almost £1bn on IT systems under an FSA proposal to speed up compensation paid by banks to customers.
The move follows the collapse of mortgage lender Northern Rock last year and the turmoil in the financial services sector, which has raised concerns about the ability of banks to reimburse customers if they go under.
Under the proposals, the banks will have to upgrade their IT systems to quickly identify customers and calculate the compensation owed to them. Banks have large numbers of disparate legacy systems containing data which is often out of date. This makes meeting the proposals a major IT project.
Hector Sants, chief executive at the FSA, said, "Experience in the last year has highlighted how essential compensation is and that it is imperative consumers understand and trust that they will be reimbursed if a bank, building society or credit union fails.
"We recognise that to help underpin confidence in our banking system consumers must feel confident that their money is well protected, regardless of whether they ever have to claim compensation."
The FSA is calling for banks to upgrade their IT systems, as part of its proposals to strengthen the Financial Services Compensation Scheme, which insures customers savings up to £50,000 if a bank collapses.
Banks will be required to improve the quality and accuracy of data held by banks through data cleansing. The FSA wants banks to create single view customers, to collate all the banks' transactions with each customer in the same place. And banks' IT systems will be expected to flag up accounts of customers that are entitled to payouts under the compensation scheme.
The FSA has proposed that banks should implement IT systems changes before the new system becomes live from 31 December 2010.
"The set up and maintenance costs of new IT systems for quick claims processing are estimated at £891.8m over five years," said the FSA.
Chris Skinner, CEO at financial services think-tank Balatro, said it is almost impossible for banks to create a singe view of customers. "Banks have multiple divisions and have made acquisitions which all have different customer databases. Bringing this to a single screen is a major project."