Building societies in the UK will be encouraged to share back
office services under proposals released by the government
yesterday.
The move will help building societies tighten financial
regulations and help them cut costs through improved processing,
but IT job cuts are innevitable.
The Chancellor of the Exchequer Alistair Darling yesterday
published the
Reforming Financial Markets white paper which set out the
Government's proposed reform of the financial system.
The government wants to introduce a model similar to that in
many European countries where financial organisations share back
office functions.
"The Government is interested in exploring the potential of
these models for UK mutuals," said the white paper.
The Government will look at whether any of the continental
models could lead to economies of scale for UK building societies
and what the potential barriers could be. It plans to report its
findings in the Pre-Budget Report.
David Sherriff, COO at financial services software supplier
Microgen, said that unlike the banking sector, building societies
gain no competitative advantage from having their own back office
processes. Sharing back office systems would be unthinkable in the
bank sector where back office processing is a key competitive
differentiator.
"This is a good idea for building societies. If you put the
resources of two or three building societies together you could
develop better processes with better systems to adhere to FSA
regulations."
Bob McDowall, senior analyst TowerGroup, said "This is a good
idea but redundancies are innevitable."