25 October 2014

Bank IT systems come under regulatory spotlight

31 March 2014  |  7735 views  |  3 london tower bridge

The resilience of bank IT systems is set to come under the regulatory microscope in 2013/2014 as the UK's Financial Conduct Authority identifies technology risk as a key area of focus for the coming year.

In its Risk Outlook for 2014, the watchdog says that growing reliance on technology is increasing the exposure to the disruptive capabilities of technologies in ways that can prove costly to firms and consumers in the future.

Recent outages at RBS and the technology problems that have bedevilled the Co-op Bank raises questions over whether current systems are adequate to handle a new era in digital banking.

The effectiveness of technologies may be limited by shortcomings in the way in which systems are designed and managed," says the FCA. "There are also some slower-burning issues resulting from the increasing complexity of systems needed to support required data processing and transaction levels that could create future problems across different markets. Vulnerabilities are especially evident where the quality of infrastructure is low. This is mostly the case for ageing, legacy or multi-layered/integrated systems, or where previous failures have been plugged with manual workarounds affecting cost issues and control risks."

Other areas of concern arise from the risks presented by cybercrime and an over-reliance on third party and outsourced systems.

The FCA, in conjunction with the Prudential Regulatory Authority and the Bank of England, has vowed to conduct a major year-long review into how well UK banks and building societies are managing their exposure to technology risk issues and the adequacy of their IT systems in general.

Comments: (3)

Derek Britton - Micro Focus - Newbury | 02 April, 2014, 10:10

The banking industry has suffered several IT outages over the past twelve months that has placed it under the eye of the FCA. All too often, we see  IT outages linked to legacy systems and yet,  the real problem typically lies in the poor investment or maintenance of these systems. They run business critical applications on a daily basis yet do not receive the appropriate funding they deserve.

According to recent research by Vanson Bourne, it costs each organization on average $11 million to bring outdated mainframe applications up to date. Much more so in Financial Services organizations. This figure increased almost a third (29%) from May 2012, when the figure stood at $8.5 million – and is also set to increase by 9% over the next five years, according to the same study.

If organisations are reliant on trusted core mainframes -regardless of vertical market -  to serve their customers they must look at strategies that enables them to assess, streamline and modernise the growing IT systems and future innovative initiatives.

Having a holistic view of critical systems will give IT departments more insight into how best to maximise business critical applications, cut the dead weight and help them establish a more efficient application delivery process. Such an approach will also mean they will not have to opt for a risky ‘rip and replace’ of existing systems which hold millions of lines of code and in essence, the organisations heritage.

A combination of tried and trusted applications and more modern tooling and delivery techniques will enable IT teams to deliver improved customer service.

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Mark Gibbons - Hudson & Yorke - London | 02 April, 2014, 11:22

The FCA has already identified that the Financial Services sector response to regulation has stretched legacy infrastuctures with 'point solutions' to achieve compliance. In my Finextra blog I discuss how Financial Institutions can proactively plan a strategic approach to ICT that can transform business operations to manage risk and achieve regulatory compliance.

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Jonathan Davis - FIS EMEA - Watford | 04 April, 2014, 10:40

The recent IT failures in banks highlight how legacy systems are buckling under the pressure caused by the sheer volume of customer transactions from mobile and web-based systems. A tactical, piecemeal approach to legacy systems development has led to some of the serious problems the industry has encountered over recent months. In an age where our reliance on online and mobile banking is vast, the foundations they are built on must be rock solid.

Involving the regulators may be the catalyst that is needed to bring about real change and improve standards across the board. Their findings will be a call to action that can no longer be ignored. The focus being put on this by the FCA is a positive step forward for the future of banking.

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