Tech, compliance costs tighten financial firms’ budgets

Binaya Dahal

Journalist

26 March 2026

Financial institutions face tougher spending decisions as budgets are increasingly absorbed by modern technologies, compliance fees, and legacy systems, according to research firm Celent.

In a survey of more than 1,000 senior executives, the GlobalData-owned firm found leaders expect technology expenditure to rise by an average of 7% this year, though the outlook varies widely across the industry.

It forecasts insurers to lead the spending, with expense rising by 13.8% in life insurance and 12.9% in P&C insurance. Banks and capital markets firms, by contrast, remain constrained with much of their budgets tied up in mandatory upgrades.

Celent’s Principal Analyst, Tom Scales, said while it is great to see life and annuity insurers investing and catching up, “choosing the wrong technology can have real competitive consequences”.

“Insurers are ramping up their IT spend this year, with many moving from experimenting with innovations to full implementation,” he said.

“Celent expects some real operational impact, with advances in generative and agentic AI, automation, real-time data platforms, and real-time risk monitoring. Not to mention that many insurers are modernizing legacy systems.”

The report says capital markets are set for the lowest spending, with buyside IT budgets expected to rise by just 3.7%.

Celent’s Capital Markets Research Director, Cubillas Ding, said achieving scale remains a defining challenge for buyside firms as they face pressures from margin compression.

“The industry is consolidating, but technology and AI enablement remain critical for differentiated strategies that protect profitability, sustain relevance, and deliver tailored investment outcomes,” Ding said.

“Looking ahead to 2026, Celent expects firms to execute parallel initiatives: operationalize AI while pursuing digital and cloud migrations of core systems.”

Furthermore, banks expense sits closer to the average, with technology budget of corporate banks expected to increase by 5.8%. Celent says much of this spending remains heavily skewed toward mandatory investment.

Celent’s Principal Analyst, Gareth Lodge, said corporate banking IT budgets will continue to grow through 2027, but so will the pressures on them.

“Many banks will feel as though discretionary spending has tightened further. While new technologies create opportunities, they also raise expectations of what these budgets must deliver,” Lodge said.

“Each innovation, such as GenAI, adds not only ongoing operational costs but also continuous upgrade requirements.”

He further said banks must also balance investing in advanced capabilities for sophisticated clients while maintaining legacy systems relied on by existing ones.