IBS Journal May 2016
45
banking IT systems? I
Chris Dutta: Although challenger banks and FinTech companies are starting to make waves, the established, large banks still dominate the market. Given the size and age of these organisations, and the fact that banking is often global, involves multiple parties talking in real or near-time, and needs always-on capability, it is inevitable that the banking IT landscape is a complicated place. A multitude of services, business lines, mergers and takeovers, has resulted in a patchwork of IT systems and architecture, exacerbating the complexity. Legacy systems are gradually being replaced, but it is a slow and often painful process.
In the capital markets space, the situation is different, with the past few years seeing a growth in automation, particularly for low-latency, high-volume trading. Firms have been forced to invest in technology to improve reliability and generate alpha. Technology tends to be newer.
IBS Journal: A number of outages made the headlines last year. Will 2016 be a case of more of the same?
CD: We track these outages and their root causes, and we counted almost 50 unique headline outages in 2015. So the chances of the industry making it through 2016 without a single glitch were small, but even we didn’t think it would take less than 24 hours. The technical problem NatWest faced on New Year’s Day was a first in the continuation of a worrying trend, as banks and other financial services firms scramble to refresh their internal systems and supporting infrastructure.
Already in the first quarter of 2016, we have witnessed issues with major banks completing system upgrades that have encountered major glitches, along with systemic issues in the payment processes which have resulted in adverse impacts on customers worldwide.
We have also witnessed the latest in a string of brazen online attacks on major organisational online software, this time in the banking sector. In a world where customers expect to be online all the time with an ability to voice their displeasure in public forums, the stability and availability of online platforms is as important as the security of your vault. The non-functional
BS Journal: What is your take on the state of
aspects of a platform (security, resilience etc.) have become as important to get right as the functional aspects.
The concern about the industry is a view supported by a growing number of regulatory bodies throughout the UK and Europe, including the Financial Conduct Authority and Prudential Regulation Authority. This has been exemplified by the Treasury Committee published correspondence who have been in constant discussions with leading financial institutions about the quality and suitability of their operating systems over the last 12 months.“
IBS Journal: What should banks be doing to address this situation? Should they rip and replace legacy systems, for instance?
CD: Remediation activity is not a decision to be taken lightly, with the planning and quality decision-making processes to be driven from the top level of organisations. We are starting to see the introduction of more roles with ‘accountability’ as opposed to just ‘responsibility’ for quality, but there should be many more. The very nature of appointing Managing Directors in these roles would have been largely unheard of ten years ago, but it is happening now and is very much a sign of banks looking to address quality-related issues.
The idea of ripping apart and replacing legacy systems, however, is not straightforward. In the long-term, this strategy does offer a viable solution. Too often, though, we see banks underestimating the scale of such activity with transformation programmes running years and millions of pounds over budget. Realistic and effective project planning with appropriate project monitoring go a long way to improving the likelihood of success.
Effective planning often favours phased implementations rather than a big-bang approach. A good example of this is the back-end system change being undertaken by The New York Stock Exchange, which is progressively migrating all markets onto a new platform called Pillar. The migration was actioned as a result of a three hour halt to trading in July 2015, which was caused by an internal issue encountered in a technology upgrade. Progressive migration is the correct course of action when dealing with old technology. Waiting until the system crashes before taking action is not.
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