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September 06, 2017

Possible Rule Change Could Impact How EU Banks Buy Software

The European Commission is reportedly mulling over an important change that would free up a significant amount of capital for IT investment — to the tune of more than €20 billion (or about $26 billion USD).

Right now, software spend is considered to be a “cost” rather than an “investment” for financial institutions in the EU. As such, EU regulation mandates that banks must set aside necessary capital for software expenses. According to one source, this equals about half of banks’ total technology spend.

For years, banks in the EU have been arguing that this restriction makes it difficult to compete against financial technology (fintech) competitors. And for years, the commission has resisted against lifting the restriction.

Now, this attitude appears to be changing. Sources indicate that the EC is now engaging in meetings with financial stakeholders in Europe to gain a better understanding of how software impacts their organizations.  

If the restriction on software spend gets lifted, it would help banks to not only to be more competitive, but also to pay for critical new cyberdefense software. Let’s not forget the impending set of regulations that are coming to the EU in May, 2018; the General Data Protection Regulation (GDPR) will require organizations to immediately detect data breaches and inform affected parties.

In a recent study, only about 2 percent of respondents claimed that they were prepared to meet the stringent set of technological requirements and organizational policies that will be necessary for GDPR achieving GDPR compliance. So there is quite a bit of work to be done in this area.

What’s interesting is that the European Banking Authority is warning that any changes to existing rules should be treated “with the highest caution” because if banks can set aside less capital for software expenses, it could wind up reducing their capital ratio — potentially increasing financial risks.

While this is technically true, the purpose of spending on technology is to increase sales, productivity and security. So it’s a relatively weak argument to make.

Our take on the issue is that more software spend may actually produce greater cyber risks, as banks explore and implement new types of programs. Organizations that are new to the financial software market will therefore benefit from managed service providers (MSPs) offering expert guidance and consulting. MSPs will also be helpful in making sure that organizations have the supporting infrastructure that is necessary for running some of these powerful programs at scale.

Apex Technology Services is an MSP serving greater New York City and beyond. Financial organizations in the EU can trust in Apex to help not just with software purchasing, but also with a variety of ongoing network management services.

To learn more about Apex, click here

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To ensure your security, consider one of our most popular services — Auditing & Documentationwhich pinpoints vulnerabilities in your infrastructure, process flow and internal security procedures.

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