FCA releases review on implementing technology change

Rick Steves

According to the report, change-related incidents are consistently one of the top causes of failure and operational disruption. Nearly 1,000 material incidents were reported to the FCA in 2019, 17% of which were attributed to change activity.

The UK Financial Conduct Authority has reviewed how financial firms manage technology change, including change failures and how to reduce the impact of incidents resulting from change management.

The financial watchdog chose to conduct this review because the importance of technology to innovate, lower costs and improve the quality of service shouldn’t be limited by the operational risks it carries, although these can and should be reduced.

“As firms are increasingly using remote and flexible working, it is critically important for firms to understand the services they provide, how change activity can impact those services, and invest in their resilience to protect themselves, consumers, and the market”, said the FCA.

Key Findings

The regulator found that firms with well-established governance arrangements have a higher change success rate and relying on high levels of legacy technology is linked to more failed and emergency changes.

In addition, firms that allocated a higher proportion of their technology budget to change experienced fewer change-related incidents, and frequent releases and agile delivery can help firms to reduce the likelihood and impact of change-related incidents.

The FCA noted a correlation between effective risk management and effective change management capabilities: “Firms that experienced less incidents due to failed changes mitigated the risk of technology change by leveraging a wide range of technical and business knowledge to ensure that potential impacts were well understood.

We also found that firms that continuously managed risks as part of day to day project management were more likely to have higher change success rates compared to firms that employed an ad-hoc or periodic approach to risk management”.

Regarding what poses as contributing factors to change failures, the regulator found that most firms do not have complete visibility of third-party changes, and their change management processes are heavily reliant on manual review and actions.

Legacy technology impacts firms’ ability to implement new technologies and innovative approaches and major changes were twice as likely to result in an incident when compared with standard changes.

The FCA also found each firm deploying 35,000 production changes on average in 2019, representing significant activity and highlighting the complexity of translating business or regulatory initiatives into technology change: “For example, many firms have had to implement changes to their technology estates due to new regulatory requirements around MiFID/MiFIR and/or Ring Fencing.

Firms have also had to respond to developments outside of the sector, like the coronavirus pandemic, the General Data Protection Regulation, and the UK’s withdrawal from the EU.”

Other key findings the financial watchdog included in the report are as follows:

  • Firms are putting through a substantial amount of changes each year, these 4 firms implemented over 100,000 changes.
  • The change success rate was 98.9%.
  • The average emergency change rate was 7.5%.
  • 16.4% of total incidents had a root cause relating to change activity.
  • CABs were also not being used as effectively as they could be to mitigate the risks associated with change.

Continued maintenance presents a challenge to firms going through transformation, but automating routine maintenance tasks seems to be the way forward in order to allow firms to re-allocate resources to other change activities.​​​​​

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