The Central Securities Depositories Regulation (CSDR) and proposed shifts to T+1 exemplify key external drivers of post-trade technology change. In this evolving environment, legacy technology transformation is an important consideration, including its ability to deliver growth, cost savings and risk mitigation. Ben Pumfrett, Head of Middle Office Product at RBC Investor & Treasury Services, shares his insights on how to make a strong case for transformational technology change within an organization.
Systems are showing their age
It's no secret that a significant proportion of core post-trade systems are showing their age. A survey by S&P Global and the ValueExchange shows that legacy technology is a particularly pressing issue on the sell side, where 27% of respondents have clearing and settlement systems that are more than 20 years old.1
27% of respondents
have clearing and
settlement systems
that are more than
20 years old
Yet defining “legacy” is not just about a system's age. As the speed of change in technology continues to accelerate, the functionality and capabilities of a system also need to be taken into account. When technology is looked at through the lens of such factors as cloud readiness, artificial intelligence, citizen development and interoperability, systems from just five years ago can quickly start to look outdated.
With decades-old systems, and the need to keep up with rapidly-changing technologies and an ever-changing business environment, there would appear to be a clear-cut case for legacy technology change. However, securing the approval and funding for major projects remains a challenge.
“Everyone has a finite budget, so the real challenge lies in the prioritization of legacy tech transformation as you compete against multiple business cases for funding,” says Pumfrett, noting that such projects have traditionally had a poor reputation that needs to be improved.
Selling transformational change requires a new approach
Historically, legacy technology transformations have been painful, multi-year projects that were often late and over budget. To counter this, proposals need to include proofs of concept. This demonstrates what the end solution will provide and calls out any risks early so they can be mitigated at the outset, helping to instill confidence in the project and make it more appealing, according to Pumfrett.
“It’s no longer acceptable for stakeholders and boards to fund a multi-year project with all the benefits realized at the end,” he says. “The project has to be staged, with incremental benefits delivered throughout the project duration. This not only improves the ROI (return on investment), but also provides confidence in the delivery of the project.”
The technology and systems available today can support this staged approach, as they facilitate “micro services” and software as a service (SaaS) solutions to be deployed quickly and effectively, offering early benefits and accelerating integration of new technology.
Total cost of ownership needs to be considered
“When you put together a business case, it’s important to explain all the benefits clearly, whether that is revenue generation, cost savings or risk reduction,” explains Pumfrett. “The total cost of ownership needs to be made clear, including infrastructure, upgrades, and regulatory and market changes that may impact legacy systems and make the new technology more appealing by improving its ROI.”
It's important to realize
that technology change
can be about more than
just driving efficiency
and cost savings
To this end, one welcome change has been the realization that technology change can be about more than just driving efficiency and cost savings. A growing part of the case for legacy technology replacement is now around revenue facilitation, as new systems can open up new opportunities in areas ranging from digital assets to the incorporation of client-facing artificial intelligence and robotic solutions.
Risk reduction should be another key consideration, says Pumfrett. “The demand for data is a good example. Moving from legacy tech may not only help the efficiency of the operational teams with exception-based operating models, but it can also make data more quickly available to other parties such as the front office.” He adds: “This allows for better management of cash, including the reduction of overdrafts, which has a positive risk and reputational impact.”
Cultures and business models need to change as well
As organizations evaluate legacy technology transformation, buying into the “transformation” element of such projects is key.
“The operating model should be defined by the new technology being proposed, rather than trying to back the technology into an operating model,” explains Pumfrett. “Otherwise, this just adds complexity and time, and ultimately the full potential and benefits of the technology will not be realized.”
This comes back to the idea that the focus of new technology should not just be to drive efficiencies and cost savings in existing processes. “The bigger prize is the potential for new businesses, new revenue streams and new operating models,’ says Pumfrett. “Packaged in a phased implementation approach that delivers both near-term and long-term benefits, legacy technology transformation projects stand a better chance of receiving approval and funding, leaving businesses in a stronger position to face future challenges and opportunities.”