August 9, 2012 - Intellect, the trade association for the UK technology sector, has called on financial regulators to force banks to upgrade their legacy IT systems, or risk future financial crises and systems failures.

The trade group, which numbers more than 150 suppliers of information systems, services and consultancy to the financial services sector among its membership, says the UK's regulatory authorities must step in and mandate change by requiring banks to ensure that their critical infrastructure is fit for purpose.

Intellect's urgings come in the wake of a number of high-profile systems failures at top UK retail banks and in the hi-tech reliant capital markets. It also coincides with the forthcoming fourth anniversary of the collapse of Lehman Brothers, an event that exposed the complexities and interconnectedness of the global financial system.

Four years on from the crisis, lessons have not been learned, states Intellect. While the wholesale markets struggle to cope with a new generation of super-fast automated trading systems, the retail sector remains underpinned by a patchwork of ageing, batch-based core banking systems.

Ben Wilson, head of financial services programmes at Intellect says: "This infrastructure is the foundation upon which the entire financial system is built and it has been neglected for far too long. The regulators, and in particular the Financial Policy Committee and the forthcoming Prudential Regulatory Authority, must take the lead on this now - it's not going to sort itself out. They either address this elephant in the room, or the effectiveness of the wider reforms that so much time and resource has been ploughed into over the last four years will be severely limited."

Complex legacy systems inhibit innovation across the financial system and specifically the development of industry utilities that could foster greater competition, he says.

"Legacy systems also inhibit existing banks' from developing their services in order to compete with new entrants," continues Intellect in a paper on the issue. "As voluntary renewal has so far been resisted, there is a strong argument for the regulatory authorities to set minimum standards for banks' systems (as part of wider minimum standards for infrastructure) - to minimise unnecessary complexity, potential downtime and the risks posed by future updates to these systems."