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March 24, 2017

Legacy Banking Systems are Aging but Are Not on the Path to Extinction

Legacy IT systems are a fact of life in banking. All established banks have significant dependencies on core legacy services and most banking services are likely to touch these legacy platforms at some point during the execution of standard end-to-end business processes. These legacy systems are elderly in technology terms, dating back twenty or even thirty-plus years. Their age can make supporting them a niche skill and increase volatility at the point of change, making resilience a challenge.

To allow them to provide the modern technology services that the market and customers demand, banks have introduced new standalone services, particularly in the digital space, such as online and mobile banking. Although this has allowed them to provide better services to their customers and keep up technologically, the new services still have to be connected to the legacy core through blended IT architectures. This means that, despite the advantages of new functions and capability, the new services still rely heavily on the legacy systems to work. This combination of new and legacy technology has introduced a new and evolving set of challenges, risks and complexity to the business which have to be very carefully managed.

The levels of complexity and risk are probably at their highest at the point of business and technical change. It can be difficult to get a full and certain understanding of how a change will affect every aspect of the legacy system and what the unintended consequences might be. This is increasingly becoming a problem as people with the best knowledge of the older systems are approaching retirement age, leaving a knowledge gap that cannot be filled.

Banks taking a long-term view on transition will gradually peel back the legacy layers and deconstruct their complex interdependencies. As this is achieved, the opportunity to migrate functions and services away from the legacy core and onto new standalone services becomes feasible and ultimately sets a course towards decommissioning.

It is likely that most banks will not have a plan to shut down their legacy systems completely, but will instead reduce critical dependencies on them and leave them performing only low-risk functions. The economic business case for decommissioning is unlikely to be compelling on a standalone basis, particularly as support models become outsourced to lower-cost managed services providers.

A more immediate challenge faced by banks is how the legacy platforms can be accommodated in the major IT movement towards agile project management and lean methodologies, continuous integration, DevOps and the more sophisticated resilience agendas. Legacy upgrades and implementations are heavily dependent on human orchestration events. Legacy platforms have to be treated with great respect and many controls are required to provide the checks and balances that confirm integrity throughout the platform. Release activities such as trade reconciliations, profit and loss reconciliations and the accuracy of complex accounting treatments are required to ensure that business services are not damaged during a change.

Legacy platforms will continue to form part of the banking technology landscape for the foreseeable future. The real challenge will be making sure that the innovation that has been employed to architect around their existence does not at some point lead to an insufficient understanding of their importance.

Chloe Lovatt
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