Financial regulators must force banks to upgrade their legacy IT systems or risk future financial crises and systems failures, according to Intellect, the trade association for the UK technology sector.
The trade group, whose members include more than 150 suppliers of information systems, services and consultancy to the financial services sector, says the UK’s regulatory authorities must step in and mandate change by requiring banks to ensure that their critical infrastructure is fit for purpose.
Intellect says that four years on from the onset of the financial crisis, lessons have not been learned. While the wholesale markets struggle to cope with a new generation of super-fast automated trading systems, the retail sector remains underpinned by a patchwork of ageing, batch-based core banking systems.
Ben Wilson, head of financial services programmes at Intellect, said: “This infrastructure is the foundation upon which the entire financial system is built and it has been neglected for far too long. The regulators, and in particular the Financial Policy Committee [FPC] and the forthcoming Prudential Regulatory Authority [PRA], must take the lead on this now – it’s not going to sort itself out. They either address this elephant in the room, or the effectiveness of the wider reforms that so much time and resource has been ploughed into over the last four years will be severely limited.”
Wilson adds that complex legacy systems inhibit innovation across the financial system and specifically the development of industry utilities that could foster greater competition.
A paper on the topic issued by Intellect commented: “Legacy systems also inhibit existing banks from developing their services in order to compete with new entrants. As voluntary renewal has so far been resisted, there is a strong argument for the regulatory authorities to set minimum standards for banks’ systems as part of wider minimum standards for infrastructure, to minimise unnecessary complexity, potential downtime and the risks posed by future updates to these systems.”
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