June 24, 2014 - Increasing regulation and compliance costs are accelerating the adoption of managed services in Australia's financial services sector, according to analysis by SunGard.

"Australian regulations around data – where it is housed and how it is managed – are considered prescriptive when compared to other regions," said Ashley Crawford, managing director for SunGard in Australia and New Zealand. "This has created multiple approaches to data management, depending on each firm's interpretation of the rules, resulting in a mix of on and offshore processing. As a result, there is a certain level of complexity around the management of technology systems and combined with the regulatory burdens around data, these are driving more firms to optimize costs and better control risks."

According to Mr. Crawford, these challenges are causing Australia's financial firms to increasingly leverage third party expertise to help rationalize costs and regulate risk.

"Maintaining your own data center to house information onshore can create cost inefficiencies and also comes with a certain level of risk. With these constraints in mind, firms can work with technology advisors who can help them resolve these challenges, instead of building an in-house solution on their own, which can prove inflexible and difficult to adapt to changing market conditions. We see a strong trend towards institutions using third parties to provide the data warehousing capability, which may not be a core business proposition for them, but has become a regulatory requirement. Outsourcing data warehousing helps firms to better focus on their core business to help drive profitability."

Another trigger for Australian institutions is simplification, Mr. Crawford said. "Financial services infrastructures are still predominantly supported by legacy systems, which are getting more costly every year to service and maintain and many don't offer the flexibility, functionality and scalability that firms need to help them perform competitively and profitably. Simplification is a word we are hearing more and more, as financial institutions start to trim down the number of systems they have to manage, while taking advantage of the increasingly sophisticated and affordable solutions available today."

These insights are part of a worldwide trend, mirroring findings from SunGard's global analysis on the drivers of managed services in the financial services industry. Many firms throughout the world are increasingly integrating technology service offerings into their software tools, such as hosting, cloud and managed services, to help them better control risks, manage costs and utilize resources more strategically.

Larry Tabb, founder and ceo, TABB Group, commented, "By 2016, approximately 50 percent of financial institutions will use managed services to outsource the management of their IT infrastructures. Due to the benefits of managed services – increased agility, flexibility and responsiveness, faster time-to-market for new products and tighter security – this model will become more mainstream in helping firms address the evolving challenges in our industry."

Mr. Crawford added, "Regardless of the size and type of financial institution, many firms in Australia will likely underpin business strategies with managed services models to help address the complex and wide ranging challenges facing the industry. As a result, third party specialists need to offer the security and scalability with both local and global expertise to help firms reduce complexity and focus on better serving their clients and growing their businesses."