Both the buy and sell sides are scrambling to become complaint with the array of new regulations that are set to impact on the financial services landscape in the coming months and years.

Regulations that are being brought in as a response to the financial crisis in a bid to increase transparency and reduce risk are adding complexity and, above all, costs to an already struggling financial services sector.

“Various numbers are floating round as to how big that spend will be, for sure,” Magnus Almqvist, senior product specialist at trading and technology firm SunGard’s capital markets business, told Markets Media.

“You need to invest in both in your surveillance and compliance solutions from an IT perspective but you also need to look at the organizational—the staffing and the schedules you need to have in place.”

Financial services firms are thought to now spend the highest percentage of revenue out of any industry on IT and coupled with the dire trading environment at present, many firms are struggling to add to their bottom line in a meaningful way.

“This combination of a depressed world economy; the volatility caused by the uncertainty of recovery, particularly in Europe; and tougher regulation starting to bite leads companies in the financial markets to adopt more cautious, risk-averse business strategies,” said Rik Turner, senior financial services analyst at Ovum, a U.K. consultancy.

“The sell side is prioritizing improvement in the bottom line over growth in the top, focusing on product accounting for more complex, multi-asset strategies in an attempt to compensate for the lack of margin in cash equities.

“Meanwhile the buy side, aware that investors are becoming less faithful as they seek better returns, is investing to shore up assets under management with improved client servicing, providing an overall better customer experience in the hope of keeping their business.”

Benefits, though, can be gleaned from becoming early adopters of technology.

“The recent effects of regulatory changes, the global crisis, technology’s rapid evolution and new trading needs are forcing the financial community to accelerate technological development,” said Stephane Leroy, head of sales and marketing at QuantHouse, a low-latency market data and algorithmic technology provider.

“Today, banks are under pressure to make the necessary changes to their trading technology capabilities, as they have yet to realize the benefits of these new solutions.”

In a recent report by Celent, the research consultancy found that a new reality was now descending over financial markets.

For the sell side, this means that with the implementation of new regulations, many firms will not be able to leverage their balance sheet to maintain the full scope of their dealing operations, and therefore are already repositioning their business models. While buy-side operations are also under pressure due to regulations and evolving market structure.

“In capital markets, the evolution of market structure will drive much of the agenda,” said David Easthope, research director with Celent’s securities and investments group.