UK government overreliance on old tech is a wake-up call to finance
A recent report from the UK Cabinet Office shows that half of all public sector spending on technology is dedicated to keeping old IT systems going.
The UK government spends and eye-watering £4.7 billion a year on IT across all departments, and £2.3 billion goes on patching up systems, some of which date back three decades.
But what is true for the public sector is also true for the financial industry. In the world of capital markets, many banks and investment managers are faced with the same legacy systems challenge.
If they do not act soon, they will continue to face the untenable ongoing maintenance costs currently being absorbed by the UK government.
Over the past 20 years, financial institutions had the very same burden of paying high levels to maintain IT infrastructure.
The trouble is that with ever increasing volumes of information to manage, driven by new data sets around ESG investing alongside the more common market and reference data, this old infrastructure is almost at breaking point.
Now the obvious solution to this problem, which many banks have already done, is shifting IT infrastructure into a cloud environment to have the elasticity required to cope with greater data volumes. However, while moving to the cloud can be the answer, the process of doing so is far more complicated, which is why so many banks are still stuck with the same old legacy IT systems.
Take the issue of selecting the best cloud provider to go with. From AWS and Azure to IBM and Google, there are numerous providers to choose from. Therefore, banks need to be careful they are not locked into one single provider.
When starting the exercise of moving to the cloud, such as when renewing a central software solution like an enterprise data management (EDM) platform, counting on a solution that is cloud native is something that helps financial institutions to have a choice.
No bank wants to indirectly select a platform due to limitations of their software solution, only to then find out later when the rest of the IT landscape is due to move to the cloud that they are indirectly bound to just one provider.
There is also a need to select a setup which enables a bank to remain flexible in terms of their operating model. Essentially this means whether a financial institution wants to run business services in-house or has decided to outsource, they do not want a situation where they are locked into all the add-on business services of their cloud or software solution partner.
The more pragmatic approach to take is to have the option to go into the cloud and select certain IT infrastructure services, while at the same time outsource business services in the knowledge that the outsourcing partner, who does not need to be the software provider, can be changed at any time.
The general trend to outsource has not lost speed with a large variety of services to choose from. The headache of spending money patching up IT systems can, for example, be outsourced.
A decision to do this may not always come down to the fact that it is cheaper. The reality of the modern corporate world is that financial institutions want their highly skilled staff spending their time on innovative projects, as opposed to trying to keep the technology lights on.
While in comparison to the situation the UK government faces financial institutions are more advanced with their cloud strategies, there are still numerous factors to consider.
Rather than replacing legacy enterprise IT with just one single solution, it generally makes more sense to have the ongoing flexibility to be able to switch providers. After all, being locked into one cloud or one software provider indefinitely could ultimately prove to be as expensive as continuing to maintain existing IT systems.
About the author
Philipp Sfeir is Head of EMEA North at financial software company NeoXam. Prior to joining the company, he worked as Head of Data Management for Zürcher Kantonalbank.
He holds a Computer Science degree from the TU Darmstadt and an International Executive MBA from the University of St. Gallen.