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Out-Law News | 17 Nov 2014 | 2:53 pm | 2 min. read
In a response to a Financial Conduct Authority (FCA) consultation on payment systems regulation (696-page / 12.8MB PDF), techUK said "the single biggest hindrance to the delivery of innovative products and services across financial services, including payments" is ageing IT infrastructure in the market.
In its reponse, techUK said that the underlying technology behind payment systems "was not designed to support the newer, more agile, mobile orientated, environment, which makes it difficult to innovate and deliver a robust mainstream solution that will be attractive to the majority of service users".
The legacy systems used in the financial services industry on the one hand support "economically critical banking services … including the processing of transactions" but on the other lead to "information silos" and creates challenges in relation to how banks introduce new technology to better serve customers, techUK said.
The technology sector lobby group, which counts Google, Microsoft and Intel among its members, also said that having to integrate new technology into underlying legacy IT infrastructure is a further challenge that "can pose significant operational risk" to the continuity of systems in financial services.
However, techUK acknowledged that for many banks and other financial services companies, it is not possible to completely overhaul legacy systems.
"Renewing this infrastructure by ‘ripping and replacing’ systems is a long term, costly and complex challenge," techUK said. "This along with the mission critical nature of many financial services, such as payments, means that ‘rip and replace’ is not a viable option."
TechUK said that new technology, including cloud-based solutions, offers businesses in the financial services industry "may offer an opportunity to ‘re-orientate’ the structure of the financial system to the advantage of financial institutions and their customers" but that the market has yet reach a point where "any tangible change will take place", despite the fact this would be "to the continued detriment of the industry itself, its customers and the wider economy".
It said a new digital modernisation strategy, led by the banking industry, could trigger the necessary change.
"It is apparent to many in the industry – and techUK’s members – that there needs to be some catalyst to enable the industry to break its technological catch 22 situation," techUK said. "The importance of technology to the future of the financial services industry is now, hopefully, a drum that the technology industry no longer needs to beat. Whilst it is unfortunate that the magnitude of technology’s role should have to be demonstrated through instances of its failure, what remains is an opportunity for all stakeholders to work together to address the fundamental challenges."
"TechUK therefore believes that there is now a need for a 'digital modernisation strategy', ideally led by the banks themselves with the support of policy makers, all financial regulators (FCA, PSR, BoE, PRA), and the technology industry – which can provide a platform for the positive evolution of the industry and enable the timely delivery of new innovative products and services to meet the needs of service-users and the wider economy," it said.
Technology law expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com said that any industry-wide strategy would need to be balance competing interests.
“While I agree with techUK, I would add that it is not about who leads and who supports – whether industry or the regulators, but the need for better collaboration between the two. Industry participants and the regulators need to find a better way to work together and balance the need for appropriate conduct rules with the need to maximise opportunities to innovate”, he said.
"Overcoming the infrastructure challenge faced by many financial institutions is central to enabling long term evolution, innovation and resilience in payments and across financial services," techUK said.