Is Tech Debt Adversely Impacting Your Bank?
The OCC released its Semi-Annual Risk Profile. The release stated that Operational Risk is elevated, with nearly 50% of all MRAs issued by the OCC being due to Operational Risk items.
Operational Risk is primarily driven by Cyberattack evolution & sophistication; Complex Operating Environments from the adoption of new products, services, and expanded fintech relationships; Third Party Oversight & Risk Management Deficiencies; and Compliance Deficiencies as expanded digital & electronic offerings are introduced.
The OCC also commented that some banks are accumulating Tech Debt. Technical or “Tech” Debt is generally characterized as the accumulated future costs to a company to operate existing technology systems and the costs to update to more advanced technologies. Tech Debt is incurred when decisions are made to postpone system updates or delay technology upgrades, creating increased risks to an organization. Following are three areas where Tech Debt has been identified as occurring:
- M&A Activity where merged institutions simply stitch their systems with workarounds and manual processes;
- Use of aging, sometimes unsupported technology, without the necessary balance of fit, security, resilience, and sustainability of those technology solutions;
- Lack of a clear strategic direction for technology architecture investments or yields to short-term financial pressures that may inappropriately postpone technology investment.
Banks that do not keep their technology infrastructure up to date may experience opportunity costs and limit their longer-term productivity gains due to the inability to implement new products and services.
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