Jennifer Foreshew | August 12, 2008
INVESTORS' needs for more transparency and accurate and timely product and market information in the current credit and liquidity environment cannot be met by most legacy banking systems, a report finds.
The research by analyst Intelligent Business Research Services, says legacy banking systems must be replaced to restore organisational agility and improve the quality of service to customers."The credit crisis is providing an excellent reality check for financial organisations that have set up management information systems, decision support systems, data warehouses, data marts and business intelligence systems that were at some point hailed as the key to reliable data aggregation and information mining," the study says.
"Globally, billions of IT dollars have been spent on such systems in the banking sector, yet these systems cannot calculate even the most basic figures needed to make sound business decisions in a timely manner."
The report says the issue is not technology but semantic data quality issues associated with aggregating data from independent legacy systems in various localities.
"Due to the lack of reliable and timely information, traders and investors are forced to make decisions based on performance figures that are only visible through a smokescreen," it says.
The research, by Jorn Bettin, says banks must increase transparency of the design details of financial products to remain competitive.
They are also expected to improve clarity about the source and quality of information fed into risk analysis tools, along with timely and accurate information about market and product performance.
In these three areas, the quality attributes of current banking software systems are a major obstacle, the report says.
"Product design details tend to be encrypted in software source code, data quality is often not quantifiable, and the low-quality incomplete system integration introduces numerous manual steps that slow down the computation of performance figures," it says.
The research argues that the strongest business case for replacing legacy systems is not based on IT cost efficiency, but on the loss of organisational agility and the inability to provide information for making well-informed business decisions.
The study advises IT managers in financial institutions and related sectors to search for possible external service providers internationally and assess their offerings compared with their specific needs before setting up any major application software renovation initiative.