As Brexit uncertainty continues to cast a long shadow over all aspects of the UK financial services industry, EnterpriseDB general manager Matt Peachey makes the case for open source software being a potential approach for banking IT professionals – providing an agile and responsive alternative to traditional technology systems, which can adapt to a range of potential outcomes.
It is not an understatement to say the situation in the UK is very uncertain and complex thanks to Brexit.
For an industry that is so often held to such high standards of ethics and regulatory oversight, it must be more than a little frustrating for financial services companies to observe the goings-on in Westminster.
However, they have not waited for clarity from policymakers, but instead moved to plan as best as possible for any number of outcomes.
Given the huge volumes of transactions made every day by UK institutions, it is absolutely crucial that, whatever the result, financial services organisations do their best to minimise the potential impact.
Brexit uncertainty is causing headaches for banking IT professionals
From an IT perspective, Brexit creates significant challenges.
Already dealing with complex regulatory requirements such as the Markets in Financial Instruments Directive (MiFiD) – which harmonises regulation for investment services across the European Economic Area – the chief information officer (CIO) has to understand the implications of different scenarios, including a no-deal scenario.
There is a real risk of significant disruption if this happens, and it would require IT infrastructures to be agile and responsive to potential changes, such as reporting requirements.
At the same time, these IT systems must remain robust, reliable and be managed efficiently to avoid Brexit becoming a money pit for IT investment.
Even if the UK does reach a deal with the EU, there will be further regulatory changes impacting the financial services industry.
Under these circumstances, how do CIOs achieve the agility and responsiveness they need to react to any one of a number of Brexit permutations?
Open source banking software could help finance institutions cope with Brexit outcomes
It might be a bold statement, but open source software could play a crucial role in helping financial institutions manage the consequences of Brexit for their IT departments.
Brexit may demand rapid implementation of changes to IT systems to comply with new regulations, but this may be a costly task if you are relying on traditional commercial applications.
Due to their complex licensing, adjusting such proprietary software at short notice could have hidden costs for existing contractual arrangements.
EnterpriseDB is already talking to financial services customers who recognise this danger and turning to open source, as it gives them the flexibility to build applications at short notice or have one on standby, if required.
Many open source applications, such as PostgreSQL, already offer functional equivalency when compared to traditional commercial databases, but Brexit now creates an even stronger case for open source, as it helps financial services organisations reduce risk and complexity.
This is important for CIOs, who need to minimise uncertainty at this time. Operationally, banks do not like adopting entirely new and untested software, and in the past open source might not have been seen as a safe choice for mission-critical applications.
Open source software is no longer an unknown quantity
Today, though, open source is not an unknown and has been embraced by a large number of institutions for a wide variety of IT requirements.
In part this has been prompted by the last few years of digital disruption.
Fintech startups, unencumbered by legacy IT architectures, have proven that you can use alternative, open source-based platforms to power far more agile banking, investment and insurance services.
They have been able to move faster and deliver these services at lower cost to customers, stealing a march on their more traditional rivals.
Consequently, the bigger institutions have learned to adapt to recognising open source as strategy for making their IT systems smart enough to fend off their digitally-savvy competitors.
Open source banking software can be an ‘emergency service’ for IT departments
With the consequences of Brexit so fluid, open source software like PostgreSQL gives customers the ability to spin up instances far more quickly.
It becomes, if you like, the Brexit IT emergency service responding to rapidly changing scenarios.
Take the issue of passporting. It is still unclear whether traders in London will be able to operate under MiFiD rules and continue to serve EU customers.
The Financial Conduct Authority has signed several memorandums of understanding with European Securities and Markets Authority (ESMA) to provide some level of assurance, but there are still open questions about how to report data, which has consequences for IT systems.
If dual entities have to be adopted, then data will have to be separated out into UK and EU customers, which could potentially create information silos that limit opportunities.
A no-deal Brexit could leave IT teams trying to harmonise systems with regulatory frameworks at local country levels, which could add significant cost as well as complexity.
The benefits of PostgreSQL open source banking software
In this highly fluid state, databases need to have the flexibility to adapt quickly, which is why PostgreSQL is so well suited to this task. Among its key attributes:
- PostgreSQL is open source-based, which means it is agile, open and able to integrate data easily.
- It is relational, which makes it compatible with the major relational databases, easing the transfer of data to the platform.
- It offers functional equivalency, with research and advisory firm Gartner saying that half of all existing commercial relational databases will have converted to open source alternatives by 2022, and more than 70% of new applications will be built on open source databases.
- It can operate as a hub for structured and unstructured data, which is crucial in today’s digital era.
- It makes licensing far easier, because EnterpriseDB uses flat rate subscriptions. It avoids vendor lock-in, and can be up and running very quickly, spinning up instances in the cloud very quickly.
Ultimately, open source and PostgreSQL addresses three of the biggest concerns facing financial services organisations at a time of maximum anxiety.
It addresses security, with inbuilt encryption to protect the movement of data. It can also offer sophisticated audit trails, which are critical to compliance.
And finally, it is “cloud-ready”, which will help financial services organisations break down silos of information.
This will be particularly important as companies seek to harmonise data and ensure they meet the requirements of regulators in the post-Brexit world.
Open source offers the flexibility organisations need, but it does so in a much more cost-efficient and effective way.
With so much uncertainty swirling around Brexit at this time of significant challenges and emergency measures for IT teams across the financial services industry, there is a real need for a PostgreSQL emergency service that can give organisations the reassurance of a stable platform, and can react dynamically to changing market situations.
Mr Peachey is the EMEA vice president and general manager of EnterpriseDB, a US-based database platform company that has created an open source-based data platform for new applications, cloud re-platforming, application modernisation and legacy migration.
