Financial services companies face "a major technology challenge" if they are to comply with looming regulatory hurdles, analyst Datamonitor has warned.

The vast majority of European financial services institutions are "poorly equipped to deal with compliance requirements at the enterprise level" owing to too many paper-based processes, inconsistent management processes, legacy front-office infrastructure and limited data integration.

"The relevant information and data required for compliance investigations are often held in disparate, multiple systems which may not necessarily provide a single view of the customer," wrote report author Sian Jones, managing analyst at Datamonitor.

Datamonitor said that many financial services organisations have invested in technology to address issues such as money laundering, but are still far from having a business-wide framework to deal with compliance.

Many companies face a "major technology challenge" to bring these systems together, according to the analyst.

"A plethora of siloed compliance systems can cause additional pain when an enterprise-wide view is required, as well as significantly raising the total cost of ownership," warned Jones.

Legislation and regulations having an impact on financial services companies include Basel II, with a compliance deadline of 2006, International Accounting Standards, which need to be in place by 2005, and the Sarbanes-Oxley Act.

Datamonitor stressed that most regulation hinges on the need for greater transparency in business processes.

But because regulators do not prescribe particular technologies or processes, financial services companies have taken a piecemeal approach to compliance, especially as the final target is unclear.

A wide range of systems opens up the possibility or error, and piecemeal solutions are less feasible because compliance cycles are shortening.

Chris Skinner, a director at financial services researcher Tower Group International Advisory Services, said: "Most financial institutions are still silo and product oriented. Most of the systems they have built have reinforced that."

And Gartner analyst Debra Logan suggested that companies are trying to work out what they spend on compliance and drive it down. "There is only one way to do that: through efficiency with IT," she said.