Moving away from Legacy IT systems

The threat of legacy IT systems

A stubborn adherence to legacy systems is slowly killing banks. Before it gets too late, the world’s top financial institutions are in dire need of an IT health check. The good news is that 2015 may see the tide turning.

Banks are all too often running on legacy IT systems that are up to 40 years old. Modernisation has been put off for a long time as banks focused on add-ons or ways to integrate systems of acquired banks. Since the crisis, a lack of cash has put many off.

However, increased regulation demanding more transparency and more effective risk management means a modern IT system is essential. Simplification must be the way banks approach IT projects going forward.

Looking ahead, it seems things could be improving. First of all, budgets are on the rise, meaning there is more cash for large-scale overhauls as opposed to tinkering around the edges. Ovum predicts US banks to spend 4.3 per cent more on IT in 2015 than last year, according to a report in American Banker.

And the focus is now on strategic investments, the research indicates, as the cost of “keeping the lights on” - in other words the basic running costs of IT - is falling.

Security, payment hubs and front-end services for customers are high up the agenda, but data is also key. As the full effects of the latest Basel rules around risk data (BCBS 239) are felt, this area will only become more important as banks move away from legacy systems. Legacy tends to mean silos and these are rarely conducive to effective monitoring of the complex web of risk.

A recent Economist Intelligence Unit report said almost all banks are investing in this, but the top performers are doing so “aggressively”.

“As big data and risk expertise grows more specialised, the best-performing banks— especially commercial and investment banks—are moving towards more centralised units that can develop expert skills, common standards and best practices that support and enhance their organisations,” the study explained. Moving away from legacy systems is essential, and it cannot be completed fast enough.

Hatstand are hosting an event on 'Decommissioning the Legacy Tail' in London this January.  To find out more and to register, visit www,hatstand.com/events.