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Financial sector to increase IT spending by 11 per cent

But over half of firms claim they won't be outsourcing their infrastructure, according to a new report.

Financial services firms are set to increase their IT spending this year, but are not looking to outsource their infrastructure, according to a new report by research firm Datamonitor.

Datamonitor said it expects IT budgets to increase by 11 per cent on average across financial services firms in 2007. Nearly half of the 100 IT and business managers surveyed - from trading and brokerage, corporate banking, investments and securities, fund management and hedge funds firms - said the most important use of technology for their firm will be establishing better customer satisfaction levels.

"The necessity to offer superior technology and connectivity options to customers is driving heavy investment for these segments as competition heats up in the space," said Amit Shah a financial services technology analyst with Datamonitor and the author of the study.

Over half of those surveyed said their firm would not consider outsourcing their IT infrastructure, but Shah still expects the trend to continue. "This is especially true within the hedge fund sector as many hedge funds do not have the resources or capabilities to maintain an IT department or function in-house," he said.

Cost reduction and efficiency will remain major motivations to outsourcing, but UK firms have become cautious about farming out work to India, Shah said. "The key reasons for recent customer backlash in the UK centres around data security and confidentiality as well as communication problems between customers and call centre staff," he said.

Incoming regulations, such as the Markets in Financial Instruments Directive (MiFID), will bolster adoption of electronic trading, as will security issues such as phishing and anti-money laundering initiatives, said Shah.

"Regulators have become less tolerant and expect firms operating within their respective jurisdictions to have appropriate and adequate risk measures and controls in place," said Shah, adding that 38 per cent of the study's respondents said security measures were of "paramount importance".

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