Pop for a drink with any C-level executive working in the financial services industry, and conversation is likely to be one-dimensional. Because, while a booming sector prior to the 2008 crash, it now risks being suffocated under an avalanche of reactive legislation and regulation. As a result, it's difficult to focus on anything else.

Giles Williams, a partner at PricewaterhouseCoopers, who heads up the firm's Regulatory Centre of Excellence in Europe, paints a gloomy picture of the current situation.

"We've had new capital rules, Solvency II and CRD rules, just before we went on summer holidays," he explains. "We've got MiFID II coming out, there's PRIPS, on the insurance side there's IMD, there's the whole issue of Recovery and Resolution Plans and a whole bunch of governance coming out of the European Banking Authority. And in the UK we've got the Independent Review of Banking."

Preparing for Solvency II

A CIO would do well to stay awake through all of this, and this article won't attempt to dissect the intricacies of each piece of regulation, but the truth of the matter is that, as custodians of corporate data, CIOs are very much on the front line when it comes to preparing their organisations for regulatory compliance. CIOs, together with their colleagues in finance.

Just ask Graham Nisbet, CIO, international retail banking at Lloyds Banking Group. "There's an awful lot of regulation out there," he says. "Some of it is quite far reaching and has massive implications on both the way we do business and the way we segment data and present that to the market place."

It's this data challenge that will be keeping your average financial-services CIO awake at night, whether they work for a retail or investment bank or, indeed, an insurance company.

Nisbet expands still further on Williams' already depressingly long list of regulatory pressures. "We've got some big pieces of legislation, such as FATCA; legislation that requires disclosure of information about customers with American tax and investment holdings," he explains. "It has a pretty broad impact – you've got to look at all your books across the globe and provide information to the US tax authorities.

"We've got the ever-changing shape of Europe, the EU Savings Tax Directive, we've been through FSA Liquidity and the FSA Single Customer View. It's about supporting the banks' attempts at justifying their risk and capital position – but in order to do that, you have to have much more granular data and supply it much more quickly."

Talking to Nisbet and Williams leaves one in no doubt about the mightiness of the challenge facing the financial-services industry – for sure, some very long days lie ahead.

"While it's very easy to store data, it's making sure that the formatting is correct, the reconciling of that information, the calculations and the definition of what fields there are [are correct]," says Nisbet. "There's a huge amount of work in data governance – and that's a common issue the industry faces."

Ben Wilson, head of financial services programmes at IT trade organisation and lobby group Intellect, says there is a growing pressure on CIOs to deliver change programmes on behalf of their companies. "These are massive measures, and you can't implement any regulatory measures without massive allocation of resource in technology," he says. "One of our members put it quite well – when you try and change something within a bank, it's like open-heart surgery."

The problem Wilson points out is that banks, by and large, have grown sporadically, and mostly by acquisition, to become giant multinational organisations utterly dependent on the IT systems that underpin them. Ironically, however, major investment in IT hasn't always been forthcoming.

"If you look at implementing something as wide-ranging as a ring fence, one of the challenges for a CIO is to implement this massive change programme while not damaging or limiting the services that the organisation already offers," he says. "It's that interlocked. If you look at the integration of Natwest into RBS, it took years."

Of course, all of this regulatory pressure would be bad enough in good times, but with a stuttering economy and interest rates at historic lows, the banking sector is facing intense revenue and profit pressures. It's a heady cocktail – fundamental challenges in meeting investor expectations combined with swathing new rules which promise both to stifle risk taking and absorb immense amounts of resource. As a result, understanding performance at a sufficiently granular level has never been so important.

"One of the things you need to have a really good handle on – and this is where the CIO comes in – is whether you have the systems to allow you to assess client profitability, because traditionally it was done by overall books," says PwC's Williams. "If you get into looking at profitability on a more granular basis, you're going to need the data in order to make decisions."

Williams is talking about a problem faced by many large banks. Their customers are so diverse, the products they sell so complex and the data they hold so disparate that it is often almost impossible to understand the profitability of individual products, customers or regions. "Having really good data so you can do quality stress tests and look at your pricing is all pretty important going forward," he says. "To do something on a cost-plus basis, isn't sustainable."

Intellect's Wilson agrees: "Trying to ascertain whether different products and services are actually profitable [isn't easy]," he says. "Quite a few banks are undertaking big projects to ascertain which products are profitable, in order to get rid of those that aren't."

Another major challenge faced by financial services CIOs is common to every other industry in the current climate – improving efficiencies in order to relieve external pressures. But the difference here is that banks, as well as insurance companies, are having to create more efficient systems, while investing in those same systems in order to meet more stringent regulation and understand the profitability, or otherwise, of individual product lines and clients.

"That is the essence of the job; balancing those requirements, and it's about running what we have in the most efficient way possible to give [the business] that headroom to allow it to expand and create new things," says Nisbet. "That's why it's so important to have a long-range vision of where you're going and to anticipate requirements so that you're building systems that are agile, scalable and that can support so many requirements but, at the same time, drive down cost of service and cost of ownership.

"It's a delicate balancing act and it's not always easy, but it's what the job's all about."

Perhaps more than in any other industry, the relationship between CIO and CFO in financial services is crucial. "It's massively, massively important," says Nisbet. "We are the custodians of the data, but we're not the owners of the data – finance are. We need to make sure that it's sliced and diced appropriately and made available where it needs to be."

CIOs prefer reporting to the CFO

To do that, CIOs must ensure they are aligned with the business, understand that long-term vision that Nisbet speaks of and run lean, flexible teams. By doing so, they will give themselves the best chance of responding to the demands of a hugely challenging economy, a fierce regulatory landscape and the unique complexities that an average financial services organisation operates under.