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Practice paper

Strategic technology risk: Core systems replacement

Patrick Mcconnell and Martin Walker
Journal of Risk Management in Financial Institutions, 12 (4), 384-400 (2019)
https://doi.org/10.69554/DVZR1357

Abstract

Following a number of recent information technology (IT) outages affecting the provision of key services to customers, UK regulators have become worried about the ‘resilience’ of banks’ IT systems environments. Over time, banks develop, purchase and maintain, sometimes, many hundreds of ‘sub-systems’, which, when combined, provide the full range of services to their customers. Any disruption of the most important (or ‘core’) systems will invariably cause serious inconvenience to customers and often require remediation actions to resolve customers’ losses. Because of their sheer size and the complexity of the many internal and external interactions, however, replacing core systems takes many years and is very risky. Because of the enormous risks involved, any decision to undertake a major core systems replacement (CSR) programme must be taken by the board of a firm as part of the firm’s overall technology strategy. This paper discusses the problems of CSR through drawing lessons from three case studies that illustrate the complex risks that can be encountered by boards making such strategic decisions. The paper finally proposes a framework for managing the risks of a CSR programme.

Keywords: strategy; strategic technology risk; core systems replacement; banking regulation; TSB; Co-op Bank; Danske Bank

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Author's Biography

Patrick Mcconnell is Visiting Fellow at Macquarie University Applied Finance Centre in Sydney, where he teaches courses in operational risk, systems risk and enterprise risk management.

Martin Walker is Director of Banking and Finance at the Center for Evidence-Based Management. He is the former Global Head of Prime Brokerage Technology at RBS Markets and former Global Securities Finance and Treasury IT at Dresdner Kleinwort. Martin is the author of the book Front-to-Back: Designing and Changing Trade Processing Infrastructure and contributed to the book Evidence-Based Management: How to Use Evidence to Make Better Organizational Decisions. He has provided evidence to the UK Parliament’s Treasury Committee on Digital Currencies and has published several papers on blockchain and cryptocurrencies. Martin received his master’s degree in computing science from Imperial College in London and his bachelor’s degree in economics from the London School of Economics.

Citation

Mcconnell, Patrick and Walker, Martin (2019, September 1). Strategic technology risk: Core systems replacement. In the Journal of Risk Management in Financial Institutions, Volume 12, Issue 4. https://doi.org/10.69554/DVZR1357.

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cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 12 / Issue 4
© Henry Stewart
Publications LLP

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