The Financial Services Authority (FSA) is planning to outsource its core IT services including datacentre, network, helpdesk, testing and desktop management in a five-year deal with a single supplier to be announced later this year.
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The move comes one year into a three-year programme to transform the regulator's IT into a best-in-class operation.
The IT function is critical to the FSA's regulatory work because its systems have to be used by every financial services company operating in the UK.
The department has a budget of £40m a year and employs 160 IT staff, supported by 120 contractors. Between 80 and 90 positions are set to be outsourced.
The outsourcing is central to the FSA's turnaround plans, which it drew up after it commissioned a report on its IT operation from consultancy firm Orbys last year.
Orbys found the FSA's information services organisation to be "very immature".
Its report said, "The division has so few industry standard attributes that systems and services are delivered to the business in an ad hoc, random and chaotic way. There have been examples recently of systems delivery failure even though there were no business or technological challenges."
Separately to its outsourced services deal, the FSA will begin outsourcing large parts of its application development function using a framework agreement. Work will be awarded to the systems integrators - Capgemini, Tata Consultancy and Xansa - one project at a time.
Application development is split into five programmes. The largest programme, Arrow 2, will provide applications to support the FSA's risk-based approach to regulation.
Its Integrated Regulatory Reporting programme supplies the systems that every financial services company must use to submit electronic regulatory returns.
The other programmes are business intelligence, records management and market monitoring technology.
The scale of the transformation will be a challenge for the regulator, said FSA IS director Darryl Salmons. "Any major change programme inevitably brings with it a degree of uncertainty for staff. People do not like uncertainty and that was recognised within IS and senior management," he said.