Banking reform should be a boost for UK IT skills - but probably won't be

As one of the biggest users of IT in the UK, the way the financial services sector deals with the recommendations of the recent Independent Banking Commission (IBC) report will have significant ramifications for IT professionals.

The need to ring-fence retail banks from the risky investment operations that caused the 2008 economic crash will underpin finance firms’ IT strategy for the next few years. It could go one of two ways.

The IBC proposals to ensure the continuity of consumer-facing operations could lead to high demand for IT skills, and for major software development projects to migrate away from legacy systems and the complexity that has built up in banks’ IT systems for many years. It’s a great opportunity for creating IT jobs and driving up the UK skills base.

However, given the cost of implementing the reforms, banks could equally look for the cheapest way to meet the requirements – and that would almost certainly mean more outsourcing, most likely to low-cost offshore destinations. Much like the Millennium Bug preparations in the late 1990s, it’s a great opportunity for globalised IT services providers.

It’s an obvious statement to say that the former option would be the best for the IT profession in the UK. It’s almost as obvious to suggest that the latter is the most likely path the banks will take.

After laying off thousands of IT professionals after the crash, financial services firms recently realised they had gone too far, and the sector has become the busiest recruiter of IT skills again. But major structural reform will only accelerate a process that started as a result of the downturn – a clear division between core value-adding IT, such as trading systems, where the banks’ competitive edge lies, and back-office technology, where outsourcing, shared services and the cloud will play a growing role.

Given this trend, the likelihood is that structural separation will be focused on those back-office areas, leading over time to fewer IT jobs.

As global firms, banks have little loyalty to any one location and will justifiably source skills where they are most cost-effective. But if they do, reform of the finance sector becomes an opportunity missed for improving the UK IT skills base.

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Some of the ideas for outsourcing/offshoring roles such as shift operations have had undoubted service, availability and financial benefits if you use the "follow the sun" method. Others have not worked so well as in the case of support people in India (4.5/5.5 hours ahead) or Singapore (7/8 hours ahead) or the US and South America when these teams are only contracted to work a standard day and are expected to support Business units in UK or European timezones; it simply does not work. Also the more countries you offshore/outsoure to increases the likelihood that many of them have different religious and public holidays and often this is an aspect which is frequently missed.