• John O’Hara, CEO and co-founder at Taskize


• 08.02.2018 12:15 pm
Legacy Systems , John O’Hara is Chief Executive Officer and co-founder of Taskize. A seasoned FinTech innovator before the term became popular, John has over 20 years’ experience delivering both trading and operations technology across the major business lines at Investment Banks.

It may contain more than four letters, but legacy has become a dirty word in banking. In recent years, it has largely been used as shorthand for all the sources of inertia that are tying up budgets and binding staff to outmoded and inefficient processes. Legacy systems are far from perfect, and inevitably show their age versus newer pieces of kit. But they still have something of value to offer – otherwise they would have been thrown into the scrapheap long ago.

As the saying goes: “There’s many a good tune played on an old piano.” Even so, any piano will sound off-key if it is not well maintained. But if its owner is willing to invest and augment over time, the reward is reliable performance at minimal cost.

In an age of unprecedented technological innovation, it’s easy to be in thrall to the potential of the new, and dismissive of the familiar. Viewed from a slightly different perspective, the many legacy systems still in use across the financial markets should be admired, even if grudgingly. In many respects, the record of these systems speaks for itself: they are still running, whilst others have been cast aside; they have proven adaptable to myriad changes, in terms of the size, speed and sophistication of transactions; and they demonstrated reliability and resilience at scale, very often achieving global reach.

Legacy systems are winners and survivors that have provided service to customers over many years, and should not be discarded without due consideration. Undeniably, many are being asked to perform tasks – and process instruments - for which they were not originally designed, with outcomes that do not always meet today’s expectations, in terms of automation and standardisation.

Nevertheless, legacy systems are only being replaced when banks are confident that the process of developing and migrating to new capabilities will deliver a meaningful step-change in service provision and/or process efficiency, while also meeting established expectations in terms of compliance, reliability, security etc. Particularly, in the present environment, the combined effect of low returns on equity and revenue prospects, reduced operating margins and budgets, and high regulatory costs means that investment in new technology is often only happening cautiously – despite the evident need to deliver greater value to customers and meet new regulatory obligations.

Across the industry, many have very high hopes for blockchain’s potential to simplify and accelerate transaction flows, in areas from securities settlement to trade finance. That potential may well be fulfilled in the future, but tackling the governance, security and scalability issues that must be addressed prior to production-level use is no easy task. As such, project timelines are regularly being pushed back.

In the meantime, banks are increasingly looking to leverage both existing resources and new innovations to improve process efficiency and deliver value. The most widespread example of this is the more collaborative approach between fintechs and banks as they realise and pool their complementary skill sets and capabilities. Another example can be seen in the way correspondent banks are responding to demands for greater transparency and certainty by using a cloud-based system [1] to track cross-border payments, while still executing transactions using tried-and-tested ‘rails’.

Some of the ensuing initiatives and partnerships might be temporary, quick fixes. But what they have in common is an appreciation of the ability of existing resources to contribute to the solution, rather than being regarded as part of the problem. By investing in legacy, banks are extending the shelf life of proven platforms and systems, not out of sentimentality, but because it often represents the most cost-effective option.

The recent trend for business process robotisation – which effectively automates the previously manual elements of key routines and workflows – might be seen as just papering over the cracks. But in other respects, it can be seen as another stage of evolution that extends the career of proven systems.

This ‘short-termist’ approach is less risky, less costly and quicker to implement than business process reengineering or outsourcing (BPO). Once considered the answer to back-office inefficiency, BPO’s performance has been mixed at best. BPO providers must invest heavily and continuously to deliver process efficiency to multiple financial service providers at scale – meaning they are far from a cheap option. And those BPO providers that do not invest effectively, simply fail to provide the process efficiencies that they promise, as has been seen both inside the finance sector and beyond.

A recent survey of global investment banks’ use of outsourcing for capital markets post-trade activities by Oliver Wyman and BNP Paribas Securities Services [2] found that 54% were ‘moderately satisfied’ - hardly a ringing endorsement. The report cited a common compliant that “providers have not invested in continuous improvement and have not evolved technology and processes beyond making changes to meet regulatory requirements”. Further, banks felt that the transition of processes to the BPO provider often took longer or was more complex than anticipated. Perhaps more worrying was the fact that 72% of firms had concern about the maturity of BPO offerings, suggesting that current providers were failing to handle the complexity of today’s back offices. 

 A fusion of old and new can deliver significant results without the need for major process reengineering, investment or timelines. In the back office, exceptions and breaks inevitably arise as customisation stretches the capacity of existing systems to deliver straight-through processing, forcing banks to seek alternative ways to save costs. Modern technology extends the working life of tried-and-tested systems, putting off investment until banks are ready to take important strategic decisions (rather than having their hand forced by circumstance). This solution offers a quick fix to reduce the steep costs – and rising number of customer complaints – currently caused by long-drawn-out resolution processes, traditionally hampered by a lack of harmonisation and communication across counterparties.

The post-crisis environment has required banks to utilise their resources – financial, technological, human – more carefully. Whether mobilising collateral, consolidating balance sheets or nurturing talent, the industry is rediscovering its genius for deriving value by sweating its existing assets.

Think of the back office in Darwinian terms. The systems on which its vital processes and functions now run have survived successive rounds of post-M&A rationalisation to become the best of breed. Legacy systems require more care and attention as they get older, but experience shows that the right investment in skills and complementary solutions, can usefully extend their longevity and utility well beyond that initially intended. Treated like a liability, they will be nothing but trouble; treated like an asset, legacy systems will behave in kind, yielding dividends year on year.