The impact of legacy technology on digital transformation in the financial services industry

The financial services industry in the last few years, has faced a formidable set of regulatory challenges, both operational and strategic, with major regulatory implementation deadlines such as MiFID II and GDPR.

In their ‘Regulatory Trends Outlook for 2018’ report, Deloitte highlighted the hodgepodge of systems, platforms and software, most of which being legacy infrastructure, as one of the key challenges for financial institutions. This remains relevant for 2019 and also for 2020.

• With a strong focus on digital transformation across all industries, the financial services sector’s ability to achieve this will largely depend on whether their strategy, technology and operations can work together to deliver maximum value.

In order to move towards digital transformation and meet stringent compliance regulations, institutions need to be able to achieve and demonstrate data integrity, simplify their technology infrastructure and look at migrating to the cloud. In addition, they will also have to get a better handle on their data to extract the greatest value from their technology investments.

However, one of the biggest challenges of extracting maximum value from data for many organisations is that data, for the most part, is being managed in siloed, disparate systems that are unable to communicate with one another. This makes the process of finding and accessing data heavily reliant on manual interventions and prone to human error. Disjointed data, results in an inept ability to achieve holistic insight and visibility across departments.

Institutions need to be able to achieve and demonstrate data integrity, simplify their technology infrastructure and look at migrating to the cloud.

Moreover, in the case of trading communication data, all financial institutions need to be able to retain data for prolonged periods of time, long after their systems have reached end-of-life and are no longer supported by the manufacturer. Legacy systems not only jeopardise data integrity and risk data loss, but they can also result in high fines and risk reputational loss for the organisation as well as personally affecting  those in charge of it.

The Global Survey on Reputation risk by Deloitte found that responsibility for reputation risk resides within the highest levels of the organisation with 36% of respondents identifying the Chief Executive Officer (CEO) of any company as the individual with primary responsibility and 21% identifying the Chief Risk Officer (CRO).

• Compliance officers are not off the hook either, with the FCA having fined David Watters £75,000 for failing in his duties as a compliance officer when providing advice on pension transfers in 2017.

Another important area that is overlooked is the longevity of the solutions and systems put in place. As banks proceed through their digital transformation efforts, relying on a patchwork of archaic systems can pose a significant risk to the organisation, including loss of data integrity and the inability to support new technologies, such as machine learning and automation.

Legacy systems should never dictate how workflows are carried out and banks shouldn’t need to adjust processes to fit with old technology. Instead, they should look at how they can create an IT environment that is able to grow and continuously meet the changing technology landscape.

Moreover, maintaining Legacy Systems can be extremely costly with more than 80% of the IT budget often being consumed by it. The good news is that financial institutions are working towards fixing their legacy infrastructure. Some have completely replaced their legacy systems, others are following their lead with multiyear modernisation initiatives, while others are gradually reducing reliance on legacy systems by implementing microservices and cloud applications.

Maintaining legacy systems can be extremely costly with more than 80% of the IT budget often being consumed by it.

For instance, Microsoft has announced that on January 14, 2020, they will end all support for Windows Server 2008 R2. Any vulnerabilities in the operating system discovered after this date will not be supported or fixed by Microsoft, making it an easy target for exploitation.

Although 2020 seems like a long way away, updating an IT infrastructure can be a large task.  If you are still running Windows Server 2008 R2, the time to start planning is now.

Having a plan to manage legacy systems will allow financial institutions to mitigate risks and retain the ability to access important data, as one of our customers, a tier one bank, demonstrated with the deployment of Wordwatch.

Using our years of expertise in the voice recording market, our Wordwatch solution was designed to decommission ageing voice recorders and provide centralised management of all data.

• The solution has been deployed across some of the largest financial organisations in the UK and EMEA, who are using Wordwatch to render their legacy technology obsolete, mitigate security legacy risks, and manage all of their recordings and sensitive data regardless of the complexity of geographical location and number of different systems in place.

Drawing recording data from multiple call recording systems from multiple vendors whether they are legacy, live, cloud-based or on-premise, makes Wordwatch a unique solution that allows banks to manage their legacy infrastructure whilst providing the freedom to choose new technologies to fit their needs. The data is presented in a single portal solution which allows the user to manage, replay, store, extract and report on, providing them with a ‘single pane of glass’ to access all data. Wordwatch provides centralised management of all data for purposes such as litigation hold, compliance exports and policy admin.

By implementing an extraction engine that is automated and vendor agnostic, organisations have complete flexibility and control over their data and are thus able to extract maximum value leading the path forward to digital transformation in a modern world.

It’s like travelling to a different country – you need an adaptor if you want to make full use of your electronics. Wordwatch is your universal travel adaptor, allowing you to ‘plug’ into your multiple systems, anywhere in the world and from multiple vendors.