SimCorp, a leading provider of investment management solutions and services for the global financial services industry, today published a report, Legacy systems: The elephant in the room. Why investment management firms need to tackle the issue head-on, which presents new findings from analysts and industry experts showing the investment management industry's continued over-reliance on technology that is not fit for purpose.
The report finds that many firms’ existing systems are struggling to adapt to new demands and that asset managers are putting their investments at risk and the industry’s reputation on the line with trillions of USD assets being managed on outdated systems. Meanwhile, the volume of trading data is growing at an unprecedented rate, increasing by an average of 60% every year.
The report states that investing in up-to-date systems has become an imperative for the buy side. Regulators globally are imposing more stringent requirements and there is increased client demand for transparency and more trading in esoteric asset classes and geographic markets. Further, asset managers are under pressure to cut costs while delivering higher profits to shareholders.
“The frenetic pace of change in the industry is not conducive to continued usage of legacy systems,” said Klaus Holse, CEO at SimCorp. “Firms run the risk of discovering that their IT infrastructure becomes a Gordian knot that becomes too difficult to untangle. Legacy systems were built for simpler processes and simpler times.”
Asset managers are typically not investing in new systems because project length often surpasses the typical term served by a Chief Information Officer making “rip-and-replace” a last resort. State-of-the-art systems can be seen as a threat to job security and the status quo. However, legacy systems are the primary driver of manual processes, which heighten operational risk, raise processing times and hinder business growth.
The report amalgamates findings from various sources including a 2014 CEB Tower Group report, which found that over 50% of financial services executives indicated that their IT infrastructure dated from 2007 or earlier; a March 2015 Funds Europe survey which found over 60% of asset managers invest in technology to increase operational efficiency; and the 2014 Gartner IT Key Metrics Data which found that 80% of financial services institutions’ IT budgets are spent on maintenance and workarounds rather than improvements.
The report concludes that legacy systems not only result in a higher degree of manual processes but they also create the need to build interfaces and additional system layers to fill in gaps. Further, creating new workarounds and spreadsheet-based solutions have potentially dire consequences such as a greater chance of trade failures and related errors.
Klaus Holse continued: "With regulators in the US and the UK issuing huge fines last year which can be directly linked to what they describe as inadequate IT systems, the financial consequences of failing to invest in new technology are all too clear."
The full report can be found on the website.