News

IT directors flag risk of employees building their own software

Technology 1IT managers are becoming increasingly concerned about colleagues developing software outside of the IT function.

According to a survey of IT directors and chief technology officers by consulting firm Sionic, 93% of asset management firms have employees creating and designing their own applications.

A combination of more advanced programming languages along and increased IT literacy has led to more business-enabled IT development.  

The practice is supported and actively encouraged by almost a third of firms, not least because it speeds up the pace of IT development and also allows portfolio managers and other front-office staff to create more sophisticated tools suited to their own preferences.

However, nearly two-thirds see it as a medium to high operational risk if it is not managed within a controlled environment.

These risks include the use of unlicensed software, unverified data sources, spiralling data costs, exposure to cybercrime, and use of code that is neither tested or supported.

According to Sionic partner Clare Vincent Silk, this industry trend not only raises questions about the best way to manage the risk, but also the future role of IT departments and directors within asset management firms.

“We could see IT directors supporting IT governance and development outside their own departments,” said Vincent Silk.

Fewer firms are building technology as opposed to buying, and more time is spent on IT integration rather than development.

Consequently IT heads could become more focused on other areas such as cyber awareness, data science, IT infrastructure and what Vincent Silk terms as the search for ‘operational alpha’.

The practice of employees designing their own software, or so-called ‘stealth IT’, is not entirely new. For example, portfolio managers have been building their own Excel spreadsheets for years.

However, the rise of programming languages like Python and data visualisation tools like PowerBi, has given business users much more capability.

The Sionic study found that the majority of the development is taking place in the front-office, among investment and quant teams, allowing for more sophisticated and proprietary data analysis.

While most firms have rules around software development, not all of them are enforced or up-to-date. Almost a quarter of firms (23.5%) have no governance framework in place at all while more than half only a basic framework that needs to be brought up to standard.

The survey also showed that there are currently tighter rules on the use of IT procurement than software development.

Asset managers will need to enhance their governance frameworks in order to manage the risk but they will also need to ensure that employees follow the guidelines, said Vincent Silk.

More collaboration between front office staff, data management and the IT function should take place to ensure a proper governance framework is in place, while more focus on risk culture and organisational awareness would ensure better adherence to the rules, said Vincent Silk.

The pandemic and the mass move to working from home has raised attention on operational resilience among regulators as well as asset managers.

Germany’s BaFin recently amended its rules on IT risks for financial institutions including the rules for IT governance and application development, while the UK’s Financial Conduct Authority has used a Technology Risk Management framework developed by the Securities and Exchange Commission in the US to test the maturity of financial firm’s technology.

The Sionic survey took place in December 2020 with 15 asset managers.

© 2021 funds europe

Thought leadership

AXA_IM_native_image

What should investors expect in 2024?

For the year ahead we expect lower growth, lower inflation and limited interest rate easing. Find out more in AXA IM’s Outlook 2024.

DOWNLOAD THE FULL OUTLOOK »
Ocorian switching admins native

Why are managers switching fund administrator?

13% of alternative fund managers are looking to switch their fund administrator over the next 18 months. Find out why.

DOWNLOAD NOW »

Euroclear_PM_white_paper_native_image_400x103

This whitepaper outlines key challenges impeding the growth of private markets and explores how technological innovation, when bolstered by the operational experience and global reach of FMIs, can provide solutions to unlock access to private market funds for a growing investor base.

DOWNLOAD NOW »
UBS_commodities_native_image_Nov_2023

Transporting goods by sea is the lowest carbon way of transporting goods. That said, the shipping sector contribute 3% of global carbon emissions, so we need it to get to net zero. Breakthrough technologies have the power to reshape the industry and drastically reduce its environmental footprint.

LEARN MORE »

Executive Video Interviews

Why fund admin tech is a key competitive advantage

Cian Hyland, Strategic Client Relationship Director at Deep Pool Financial Solutions spoke to us about how technology enables efficient data management, reporting automation and secure data access.

Insights from State Street

Cuan Coulter, Global Head of Asset Managers and Head of UK and Ireland at State Street, discusses how fund managers decide between the two cross-border fund domiciles, namely Ireland and Luxembourg, and why asset managers find managing data so difficult.

Unlocking access to private markets

Vincent Clause, who heads the global funds strategy at Euroclear and David Genn, CEO of Goji, sit down with Funds Europe to explain how technological innovation, bolstered by operational experience and global reach, can provide solutions that unlock access to private markets.

Sustainable investing in the DC world

Claire Felgate, a specialist in UK defined contribution pension schemes at asset manager BlackRock, talks with Funds Europe editor Nick Fitzpatrick about how - and the pace at which - DC pension schemes are adapting to the requirements of sustainable investment.

arrows

Webinars

Watch our webinar for a deep dive into the findings of the fresh-off-the-press EU Taxonomy 2023 Insights Report, based on Clarity AI's best-in-class coverage of EU Taxonomy reported data and CDP industry-leading environmental datasets. 

In this webinar, we discuss tools for optimising fund data management and distribution, the role of global fund classifications and ratings, and how technology and automation enhance data integrity and insights.