UK financial aservices companies are being forced to spend too much of their budget on complying with new regulations, says the CBI.

The organisation's 'Financial services: promoting a global champion' report, says financial firms are spending 15 per cent of their IT budgets on compliance and not enough on improving productivity or customer service.

They face a 'tidal wave' of regulation that could affect the country's competitiveness and undermine the sector's contribution to the economy, teh report says.

The impact goes deeper than simple budgetry matters, says the CBI, with management time diverted away from developing the business, new investment replaced with spending on compliance, and a heavier spend on training.

The CBI is calling for a moratorium on new regulations, warning that additional regulatory pressures on the industry could endanger the global status of the UK in financial services.

'A robust regulatory environment is essential,' said CBI deputy director-general John Cridland. ?But companies are being battered by the impact of relentless new regulation.

'It's forcing a dramatic and wasteful diversion of effort away from the daily battle to keep the UK ahead of its competitors. It's vital that companies are given a substantial breathing space and not another onslaught,' he said.

The British Bankers' Association is also concerned about the impact regulation is having on IT budgets.

'There is no doubt that the cost [of regulatory compliance] is increasing and that it is having an impact on IT costs,' said spokesman, Brian Capon.

'Financial services institutions are currently responding to some 28 directives, which have all got to be looked at assessed and worked on. But it can be difficult to quantify what those costs are outside of ongoing IT development programmes and it is difficult to strip out what IT costs are directly related to legislation,' he said.

Cubillas Ding, senior financial technology analyst at research firm Datamonitor said: 'Our own [Datamonitor] estimates expect budgets to increase by four to six per cent, where a lot of spending in other areas are being re-deployed to compliance projects. Institutions need to step back and rationalise, reduce the duplication of efforts in dealing with each regulation and avoid siloed approaches. The worst thing to do is apply a piecemeal to common IT solutions [for each, various regulation].'

Gary Simons, business intelligence practice partner for consulting firm Deloitte says there is an upside to compliance.

'There is some ongoing benefit to using better systems, processes and approaches for regulation to improve the performance of the business,' Simons said. 'That is the silver lining to regulation, which will be appreciated eventually. It seems a huge burden now, but sets the agenda for a better business. It is wrong to cast all regulatory change in a bad light.'