Experts warn banks to perform ISA upgrades

City analysts have warned banks offering bundled ISA (individual savings account) services to upgrade their IT systems or risk paying penalties.

Under the ISA rules, providers could be held responsible if they allow investors to take out ISAs that, when accumulated, exceed the legal allowance. The only way to prevent that situation is for the bank to set up an integrated IT system that can put all accounts on a single invoice.

But analysts say many banks have so far chosen to only provide one part of the ISA product in order to avoid the complexities of integrating their systems. A spokesman for Ernst & Young said: "The administration of ISAs is far more complex than PEPs and Tessas because they are so much more flexible. There are a number of organisations which have delayed entering the market because of the major changes that need to be made to their IT systems."

John Battersby, tax partner for the personal finance sector at KPMG, said: "Banks are having to complete a more stringent screening process when an investor opens an ISA account. In particular, if the bank is offering more than one element of it." This, he continued, means they will have to be able to cross-check accounts in their systems.

However, he pointed out that the demand for ISAs will take a while to build up, because as with the old investment plans, many investors will wait until the year-end. But he warned: "By March and April 2000, banks will want to have their systems at maximum efficiency."

And even when the banks' own systems are at maximum efficiency, the problems will not be over. Simon Godsave, director of NatWest Group's ISA project, argued: "The biggest problem will come from people investing money in different institutions. There is no way of being able to cross-reference because of data protection laws."