Bank IT departments face splits

The government is set to press ahead with plans to force banks to separate their investment and retail arms.

The separation plans are now expected to be completed in 2015, rather than the original deadline of 2019, business secretary Vince Cable told the BBC. A formal announcement is expected later.

It follows the Independent Banking Commission (IBC) recommendations that banks separate their retail and investment operations.

The IBC report was scant on detail, but conclusions about its impact on IT are being drawn. As well as individual systems requiring separation, entire IT operations and outsourcing agreements might face restructuring before the recommendations come into force.

Ring-fencing is seen by many in banking as less harsh than a complete separation.

The retail operations of UK banks suffered when investment divisions ran into trouble during the 2008 financial crisis. The government is determined to avoid a repeat of the events which affected bank customers and brought TV images of queues of panicked account holders at Northern Rock that came to depict the financial crisis.

Large banks which have retail operations running alongside investment units will be faced with major upheaval between now and the deadline in 2019.

John Worthy, technology partner at law firm Field Fisher Waterhouse, said the process of ring-fencing units will be complex and costly. “For banks and suppliers this means they will have to look at how it impacts IT outsourcing deals that may need to be split between the different parts of the banks.