Finance CIOs sweat as regulators prepare to probe aging mainframes

Hipster devs + knowledgeable old-timers = working legacy system

Either way, this clash of old and new in banking applications can lead to a crisis in communications for many retail banking IT teams. “To make this work effectively, you need some hybrid skills to understand web services that can actively expose parts of the core legacy systems in newer, smaller apps,” adds David Gee at CUA. “In short, [you need to get] a Gen Y developer working with a Baby Boomer or a Gen X mainframe senior IT professional - an architect who gets the bigger picture and can help "join the dots". This is a significant challenge to make these two worlds work effectively together.”

“It’s akin to a religious war,” he continues, “with, in one corner, older systems that are operational and, in the other corner, agile apps that are developed in short sprint cycles.”

In the usual scheme of things, most banks manage to keep legacy systems up and running, most of the time - but the currency of the information they offer to customers is also starting to struggle, particularly as customers increasingly expect the most up-to-date information about their balances and transactions, regardless of the time of day (or night), or their location.

That’s because most banks have taken a "middleware" approach to bridging the gap between their legacy core banking systems and newer applications, says Mark Holland, partner at Holley Holland, a business transformation consultancy specialising in the financial services sector.

“You can put a new front end on top, which gives the impression that everything’s shiny and new and working just fine, but the underlying systems that feed data into the new mobile and internet banking apps are still the same tired old legacy systems,” he says. “If, as a consumer, you expect to see your financial world, all in one place - all the latest data about your current account, your loans, your savings and your mortgage through an up-to-date online portal - you’re likely to be disappointed by most banks today,” he says.

From the point of view of the CIO, meanwhile, “what you end up with is not just technical integration complexity, but also platforms that are not designed to be responsive to new and emerging channels in the way today’s customers expect,” according to Tony Prestedge at Nationwide.

Still, it will take some powerful persuasion - or at least regulatory mandates - to get the situation to change in the UK.

These could be on the horizon, however. Earlier this year, the UK government proposed changes to the inter-bank payments system, owned collectively by the country’s large incumbent banks and largely self-regulated, which would see the market opened up and placed under a new regulator.

A change is coming...

The main reason given was competition issues: “The UK has a situation where a group of the most powerful users of a system are also its owners," says a March 2013 report [PDF, 28 pages] from HM Treasury. That means that smaller players and new entrants to banking must seek access, whether directly or indirectly, to systems that are jointly owned by a number of their competitors.”

But, at the same time, there are clearly concerns about the investment (or lack thereof) made by the banks in the technology that underpins inter-bank payments. At the Bank of England, executive director for financial stability Andrew Haldane has criticised payment systems for “an endemic degree of inertia”, with the bulk of spending going on merely maintaining legacy technology.

If the UK government and Bank of England have their way with the inter-bank payment system, they may start to look into the resiliency of back-office core banking systems, too. “We’re about to see tighter controls for banks over operational risk, and some of these legacy systems make it extremely difficult for banks to demonstrate they’ve got that,” says Graham Lloyd, a retail banking expert at management consultancy PA Consulting.

But critical incidents like the one that hit RBS in 2012 may leave regulators with little choice but to act, says Daniel Mayo at Ovum. “It’s won’t be that banks will be required to replace all their legacy systems immediately, but they’ll likely need to be able to demonstrate that they’re on top of the situation as regards resiliency and are actively working to ensure outages don’t happen in future.

"It certainly looks, from where I’m sitting, that more intervention is just around the corner.” ®