One in four buy-side firms worldwide run core business operations on legacy systems, according to a new report published by SimCorp StrategyLab, a private research institution sponsored by SimCorp.
According to the report, given that the top 2,000 firms collectively manage upwards of US$80 trillion in assets, more than the 2012 global gross domestic product (GDP), trillions of dollars are at the mercy of outdated technology.
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The new study titled, Legacy Systems: The inconvenient truth and the cost of doing nothing, is based on interviews with over 500 buy-side institutions across the globe and research from more than 100 industry sources, the paper highlights the serious consequences of relying on legacy systems.
According to Ingo Walter, President of SimCorp StrategyLab and Professor at the Stern School of Business, New York University, "The financial crisis of 2008 was attributed in large part to opaque instruments, toxic mortgages and the breakdown in corporate governance. However, there has been a lack of insight into the role that technology systems played in accounting for why executives were not able to access the most basic information on the state of their businesses in order to take corrective action. Neither has there been an analysis as to why some firms were better able than others to understand their counterparty exposure and mitigate the losses resulting from the collapse of Lehman Brothers and Bear Sterns."
Among the industry sources cited in the 40-page study is the MF Global trustee’s report presented by Louis J. Freeh, former director of the U.S. Federal Bureau of Investigation. The Freeh report alludes to system deficiencies leading to MF Global’s "inability to forecast and track financial information accurately on a real-time basis resulting in executive management reacting too late and too slowly to the growing liquidity pressures placed on the company by the Euro RTMs and new trading desks."
A CEB TowerGroup report cited in the paper explains: "Replacing legacy systems will soon become a fundamental requirement for FSIs seeking to retain or regain marketplace leadership."*
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By GlobalDataThe SimCorp StrategyLab study defines ‘legacy’ systems as those that:
- Have difficulty providing a real-time consolidated overview of positions and holdings and;
- Often run on outdated, poorly documented or obscure technologies and;
- Are infrequently updated and;
- Have difficulty in automating or adapting to business processes.
