The risk of legacy compliance systems

If your firm is still replying on outdated compliance systems, you’re not alone. While familiarity with your legacy systems and lack of resources may make updating your system unappealing, outdated compliance software can be a ticking timebomb for compliance.

Ageing systems can’t keep up with evolving regulations and cyber threats, exposing companies to security breaches, fines, and inefficiencies. In today’s fast-moving digital landscape, it’s critical that your systems are up to date so that you can fulfil your compliance obligations.

In this article, we will address legacy systems challenges and their impact on regulatory obligations. While many budgets are stretched, adhering to industry regulations is not an option; it’s a necessity, and failure to do so could significantly impact not only your balance sheet but also your reputation.

Understanding legacy systems

Before we look at the challenges legacy systems can create, it’s important to identify exactly what they are. These systems use outdated software and hardware infrastructures that are being replaced by modern, more efficient alternatives. Legacy systems may still function, but emerging technology highlights their operational and compliance limitations.

Some typical characteristics of legacy systems might include:

• Outdated technology and architecture
• Lack of vendor support and updates
• Integration difficulties with modern applications

Seeing the basic characteristics of a legacy system may prompt many readers to reconsider their position: Is your business really up-to-date with the latest cutting-edge compliance systems?

Prevalence in organisations

Technology evolves rapidly, and while today’s systems may seem sufficient, legacy systems present more profound challenges. Despite their limitations, many organisations still rely on them due to high replacement costs, operational dependencies, and the risk of downtime.

In a highly competitive industry where margins are tight and running costs are rising, system upgrades often take a backseat. However, the potential damage caused by outdated systems, from regulatory non-compliance to reputational harm, can far outweigh the costs of modernisation.

Compliance challenges from legacy systems

On the surface, your existing legacy system may seem to be delivering exactly what you need. However, when you dig a little deeper, a whole host of compliance issues emerge.

Security vulnerabilities

In the world of financial services, regulators have brought this huge issue to the fore. Outdated security systems increase the risk of data breaches due to weak encryption standards.

Data management issues

Many legacy systems have difficulty maintaining data integrity and accuracy, and retrieval is often far from straightforward. If the required information is not readily available, the potential impact on not only compliance audits but also client services is clear.

Regulatory updates

Internal systems must adapt to the latest compliance regulations. Even introducing a manual process, which is far from ideal even as a short-term measure, has its own basic weaknesses, such as higher error rates.

Documentation and audit trails

It is often a case of one in, one out when it comes to system updates, with vendors more focused on today’s technology for obvious reasons. Consequently, vendor support and assistance will fade as your legacy system ages. This will expose significant dangers, such as an outdated central IT system that lacks meaningful support.

Strategies to mitigate compliance risks

Long-term planning is critical to any business’s success, but investment is crucial to mitigating compliance and operational risks when it comes to legacy system challenges. Various strategies can help mitigate legacy system challenges".

System modernisation

After the initial cost of replacing your legacy system, it’s important to see updating as a continual process. Cloud-based solutions for compliance have numerous benefits, such as efficiency and cost, which are critical when considering investment in new technology. However, a full system replacement is not an option for all businesses.

Implementing middleware solutions

One popular strategy used by many companies is implementing middleware solutions that effectively bridge the gap between legacy and modern systems. This is where eflow excels, bringing together legacy systems and the latest cutting-edge Regtech technology at a fraction of the price of a system overall.

Regular compliance audits

A growing number of companies now employ the services of external third parties to carry out regular compliance audits of not only their technology and systems but also their internal processes. These audits identify and address compliance gaps, often prompting the introduction of automated tools for continuous monitoring.

Employee training and awareness

Staff training is essential for both compliance and business success. Regular training will help update employees about new systems, compliance requirements, and best practices. Continuous training and awareness should be part of your employee handbook, helping to establish a culture of compliance within organisations.

How eflow can help with legacy systems challenges

Our experience in providing clients with robust compliance technology has helped a number of financial firms overcome legacy system challenges. Our Trade Surveillance, Best Execution, eComms Surveillance and Transaction Reporting solutions are designed help firms move beyond outdated legacy systems to ensure compliance with the regulatory standards.

Automating compliance

Many legacy systems rely on manual compliance checks, leading to inefficiencies and risks. Automating regulatory reporting ensures seamless and consistent data validation and submission. The end result is compliant workflows, improved accuracy, and enhanced efficiency.

Enhancing risk and surveillance capabilities

By leveraging machine learning-driven surveillance tools, TZTS is able to detect market abuse and suspicious trading activity. The automatic flagging of potential compliance breaches and reduced number of false positives increase efficiency and reaction times.

Future-proofing and scalability

Many legacy systems tend to be relatively inflexible, which can make it very difficult to adapt to new regulations. The introduction of modern Regtech solutions brings with it regular compliance updates, allowing businesses to remain compatible with global regulations, and customisable rule alerts. Built-in scalability ensures that you can also fulfil your compliance obligations as your business grows.

Reduced operational and compliance costs

The ability to optimise compliance operations, reducing the need for manual intervention, will significantly impact operational and compliance costs going forward. In addition, this not only reduces the risk of regulatory fines but also helps enhance client confidence and avoid reputational damage.

Conclusion

Legacy systems pose serious compliance risks, from security vulnerabilities to regulatory inefficiencies. Evolving regulations make outdated technology a compliance risk.

eflow solves this problem, offering tech-driven surveillance, automated reporting, and seamless integration without costly system overhauls. By addressing legacy systems challenges, clients can stay compliant, reduce costs, and future-proof operations.

Don’t let outdated systems hold you back. Book a consultation today to discover how our Regtech solutions can help you stay ahead of evolving regulations.