FCA review of banks’ legacy IT will ‘add to mountain of regulations’

The Financial Conduct Authority’s review into banks’ IT systems threatens to add to the mountain of regulations already faced by lenders, industry experts have claimed.

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The Financial Conduct Authority’s review into banks’ IT systems threatens to add to the mountain of regulations already faced by lenders, industry experts have claimed.

The investigation into the resilience of IT systems used by banks and building societies, announced by the FCA today, is aimed at addressing a number of service outages which have affected customers. A report on the findings of the review will be released in 2015, and could lead to tougher rules governing banks’ systems, the FCA said.

According to Andrew Holley, founding partner at financial sector IT services provider, Holley Holland, the review of IT systems threatens to pile more pressure on banks which are already struggling to meet the barrage of regulation launched in the wake of the financial crisis, .

“In carrying out their reviews, it is important that regulators appreciate the challenges facing the banks, not least because some of those challenges are being laid on them by the regulators themselves,” Holley told ComputerworldUK.

“Over the past few years, the banks have invested heavily to improve on client services through online and mobile banking, as well as making significant investments in complying with the regulations that the FSA, the PRA and the FCA have laid down,” he said. 

“The review process should give regulators an appreciation of the challenges faced by the banks in balancing the demands of their clients and of the regulators.”

As well as investment in front-end systems to improve customer service,  banks are addressing legacy IT concerns through investment in revamping critical infrastructure.

In response to another high-profile outage in December which prevented customers from withdrawing cash or making transactions, Royal Bank of Scotland CEO Ross McEwan pledged to increase spending on upgrading IT following “decades” of underinvestment. The bank later announced in its full-year results a major project to improve resilience by rationalising its legacy estate, with plans including the consolidation of core banking platforms from 50 to 10.

Barclays has also attempted to address its IT complexity through its ‘Transform’ agenda, closing six data centres and reducing the number of servers it owns by 6,000 since mid-2013, as well as decommissioning and retiring legacy applications.

“The banks are well aware of the problems, and are doing all they can to alleviate the issues of legacy systems and insufficient capacity which are leading to the outages, so I am not sure the FCA is going to bring anything new to the table,” said Peter Roe, financial services analyst at TechMarketView.

“Obviously the banks will do whatever the FCA asks of them, but the banks will be trying to move as quickly as possible. If the FCA is having a survey to be completed in 2015, I don’t think it is going to make a significant difference to the bank – it is just another set of reporting requirements.”

The banks are already under pressure to improve systems, Roe says, with their own customers the main driver for change.

“The customers of the banks are the most important regulator. If banks let their customers down they will feel it in their P&L, so they are probably the most immediate judges of banks performance and IT strategies.

“It would be very difficult for the FCA to significantly influence the strategy of banks in a quick enough time scale to really make an impact. The regulators run at a slower timetable to the markets.”