The FCA is set to probe the underlying technology that powers platforms as Money Marketing research reveals the scale of the tech challenge facing providers.
With a number of platforms preparing to upgrade their systems or re-platform to ensure they can cope with market growth, alongside the move towards direct-to-consumer business, the risks of technology crashes are increasing.
Money Marketing understands the FCA is set to look at platforms’ technology systems later this year to assess whether there is the potential for negative impacts on consumers.
“Of course the regulator has to be concerned about this,” says Cazalet Consulting chief executive Ned Cazalet.
“With the huge migration of assets to platforms, which are increasingly supporting people’s entire retirement savings, the FCA will want to look at the technology companies providing the backbone to this industry.
“The regulator will want to know how robust they are and what would happen if one of these third party providers was to fall over, either financially or if there was a big technological crash.”
Platforms either provide their own technology in-house, or are generally supported by one of the main providers, such as GBST, Bravura or FNZ.
But as platforms seek greater scale and efficiency, a number are set to go through upgrades or switch provider in the coming months.
Responding to a series of in-depth questions from Money Marketing , three platforms admitted they will need to change their technology to meet their growth plans over the next five years. Two platforms – Axa and Cofunds – refused to answer the questions.
Last year, Nucleus had to refund hundreds of customers after a series of trades went wrong in the months following an upgrade to Bravura’s new system Sonata in June.
Aviva was due to go through the same upgrade in the second half of 2014 but has now delayed the move, while Ascentric is set to switch from its own technology system to Sonata towards the end of this year.
Fidelity also has plans to replace parts of its technology in the near future, and Old Mutual Wealth is migrating its systems to IFDS as part of a 20-year deal.
Bravura chief executive Tony Klim says: “Much of the existing platforms are on 1980s and 1990s technology and things have moved on a lot since then.
“We are seeing more and more moves to web-based services, and to the D2C market, and you need highly scalable, very efficient technology to do that.
“As the value chain gets squeezed, platforms need to be able to run the administration behind the platforms much more efficiently.”
GBST wealth management chief executive Rob DeDominicis says the firm upgrades clients’ technology at least once a year. GBST works with Aegon, Fidelity, AJ Bell and Novia and says it is implementing systems for Alliance Trust Savings and “two or three” as yet unnamed other providers.
He says: “Whenever you make changes to software it all has to be thoroughly tested. End-to-end testing is a complex process which can take up to six months.
“We try to minimise the risks as far as possible, but testing is done by people and it is only as good as the people doing it. We run 22,000 test cases, which means there are 22,000 things that can go wrong.
“Each of our clients may have their own test cases on top of that which could run to the several thousands, and they also have to test their internal systems which interact with the software. I don’t know if the market appreciates just how complex platforms are.”
EY financial services management consultant Mark Stringer says platforms which do not keep their technology up-to-date risk coming under pressure as the market grows, but warns system changes can incur short-term pain.
He says: “Some platforms are sitting on technology which is 10 years old. So not only is the platform not best engineered to deal with future market stresses, but it is also not well placed to support the mobile technology which will become common place for platforms in the next few years.
“The more modern platforms are moving towards models used by the big online players such as Facebook and Amazon which are infinitely scalable. But those on older technology will have higher operating costs as they need to employ more people to keep the lights on and will have a limit to the amount of business they can take on.”
He says a migration can lead to both technical and personnel difficulties.
“Some organisations choose to start the new technology with new customers only, which means for a certain period you have the old and new systems operating in parallel,” says Stringer. “Typically the same management team will be running both, so there is a dilution in skills.
“There is also a risk of data corruption, which could manifest itself in trades and valuations going wrong. Websites may also be very slow or could crash completely.”
EY senior adviser Malcolm Kerr says regulatory scrutiny of the reliance on these systems is increasingly likely given the amount of assets sitting on platforms. He says: “If I was the FCA and realised a very large proportion of investments on platforms are sitting on three technology solutions I would want to have a look at those systems.
“The FCA would not want the embarrassment of finding out the technology behind it is flimsy, or that the technology is working well for businesses but not for customers.”
FNZ is regulated by the FCA, as it administers funds, but Bravura and GBST are not.
DeDominicis says: “The FCA doesn’t regulate firms like us but it does check our clients have the right risk and control procedures in place.
“But if the FCA wants to take that a step further I would welcome it because it would give my clients additional reassurance. We are not a business they can regulate but what they can do is manage risks in the market.”
RGP Compliance managing director Simon Collins says data protection and controls is a big issue for the regulator.
He says: “There is a data protection directive coming out from Europe, while the retail investment advice due diligence review being carried out this quarter raises questions over whether advisers should be asking about platforms’ data security and controls.
“The FCA has not commissioned a section 166 review in the data and IT area as yet but I understand there are a number in the ether.
“This is likely to affect banks, insurance firms and platforms – any firm with a significant number of customers should be prepared for some investigation into their data strategy.”
In November, the FCA and Prudential Regulation Authority fined Royal Bank of Scotland £56m for an IT failure in 2012 that left customers unable to pay bills or access cash from their accounts. A software upgrade saw 6.5 million customers face disruption to account services for two weeks.
Stringer says: “We have seen the publicity when cash machines stop working, and the action the FCA is prepared to take as a result.
“The law of averages suggests there could be a significant outage at a platform in the next couple of years, and it may come about as a result of a technology migration.”
Cazalet adds: “The FCA imposed a massive fine on RBS when its systems went down, and platforms are far more complicated than bank accounts. The problem is a platform might only have £5m of capital, so what happens if the regulator wants to fine it £5m?”
When asked by Money Marketing how quickly they would be able to recover their systems in the event of a catastrophic failure, some platforms said there would be no disruption, some quoted recovery times of between one and six hours, while a number refused to answer.
Experts say advisers should scrutinise technology providers when deciding which platform to use in order to fulfil their due diligence obligations.
The Lang Cat principal Mark Polson says: “There is a growing realisation that platforms need to supply advisers with information they can use to satisfy themselves the system is not being run off a dusty old Pentium 2 PC in someone’s back bedroom.”
The Platforum senior researcher Annalise Toberman says the biggest issues are how seamlessly platforms can integrate third party systems with their own, and how the use of a third party provider impacts on the service they provide to advisers.
“FNZ, GBST and Bravura earned their stripes in the Aussie market which is considerably more mature than its UK cousin and there is little cause for concern regarding scalability,” she says.
“Bigger issues are how the outsourced technological underbelly of the platform marries up with the user interface created by the platform provider; how technical support to advisers works when an outsourcing partner is involved; and how responsive these partners are when platforms request specific enhancements on behalf of their users.”
As regulatory scrutiny increases, it is clear advisers need to ensure they pay as much attention to what lies underneath platforms as to the providers themselves.
It is no surprise respondents to Money Marketing ’s round-up on platforms’ underlying technologies have played their cards pretty close to their chests. Asking about tech is always hard – the interesting stuff is way down in the detail and most readers would, I suspect, rather stick needles in their eyeballs than get into that.
The good news is lots of companies did respond to the survey. There is a growing realisation that platforms need to supply advisers with information they can use to satisfy themselves that the system is not being run off a dusty old Pentium 2 PC in someone’s back bedroom.
Underneath were a few interesting nuggets – True Potential does indeed build its own platform, inasmuch as it builds the screens you see when you use its system, but under the hood sits SEI’s Global Wealth Platform. All respondents, bar Transact, use outsourced technologies, and arguably advisers should be putting SEI, Bravura, GBST, FNZ and IFDS under the microscope rather than Novia, Nucleus, Standard Life and so on.
A couple of other things along the way – Aviva uses Bravura “for our advised platform”; we shall see what it chooses for any other platforms it may care to bring to market along the way. A number of providers have re-platformed recently or are in the process – we note Ascentric are now slating the under-the-hood adoption of Bravura to replace its Bluebutton system for the end of 2015.
There is no such thing as an easy re-platforming – imagine removing and replacing a car engine whilst racing it around the Nurburgring and you are not far away from it. Advisers need to show patience with providers undergoing big change of this type – and providers need to make sure they are open and honest with advisers.
Mark Polson is principal at The Lang Cat