Legacy IT systems, the multiple layers of IT platforms within banks that have been built upon over many years, are at the heart of established financial service providers’ operations. They are business critical, interdependent upon other elements of a bank’s IT infrastructure and are often running 24 hours a day. Adding new elements or removing them from these legacy systems (i.e. to remove IT systems that facilitate specific banking products or services) is a very complex and very expensive process that will impact upon a multitude of different aspects of the bank’s processes. In many cases it is not in the broader interests of a provider to remove a product from the market because of the costs and the disturbance to core systems that unwinding these un-needed systems would incur.

Legacy systems, whilst being an impediment to established financial service providers’ abilities to quickly integrate new technology for new products and services (and thus react to customer demand in a timely manner) are also a high barrier to exiting a market for a specific product or service. If banks in particular are to increase their efficiency, and retain their customer base, the issue of legacy systems needs to be addressed by banks themselves, and the regulator. The challenge for the financial services industry, and for Intellect’s Members, is to facilitate innovation and regulatory compliance that will shape the development of the industry, whilst working within the limitations that these systems impose.

Intellect believes that regulators should do more to understand the impact that legacy systems have upon financial services providers’ abilities to provide high standards of customer service and remove loss-making products from the market.

Incentives, such as capital tax breaks, could be made for banks to replace their ageing legacy systems and allow them to become more efficient and customer friendly. For state owned banks, a reduction in the repayments of public debt could be made in the immediate term so that investment could be made in bank’s IT systems. This would allow a quicker repayment of public money in the medium term as the banks become more efficient and more commercially viable.

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