An independent report has slammed the IT operations of City watchdog the Financial Services Authority as expensive, lacking direction and badly managed.
The report was commissioned by the FSA's information services director, Darryl Salmons, in the summer. He has used its findings to make the business case for a two-year transformation of the regulator's IT that will cost up to £8.5m.
The FSA regulates the UK's financial services industry and has demanded that banks and insurance companies invest heavily in systems to ensure compliance with regulations and transparency in business processes.
It has also taken a lead in boosting business continuity awareness among companies, yet its own IT organisation is "woefully inadequate" according to a report by Orbys Consulting.
The report revealed that the proportionate cost of the FSA's IT department was more than twice the average of the companies it regulates.
Orbys said, "The IS cost-to-revenue ratio of over 17% is one of the highest that Orbys has experienced. At the high end, the UK financial services industry average is 6.87%, and at the low end the construction industry is 1.37%."
Orbys said the different business functions at the FSA have failed to benefit from the investment in IT systems.
On seven criteria that Orbys believes determine whether an IT function is successful, the FSA's IT department was ranked either "poor" or "very poor".
The worst score, 0.3 out of 5, was for the department's ability to identify business opportunities. However, the study said the reasons for this failure lay largely outside the control of IT.
"The business does not fully understand the complexities of implementing IS solutionsÉ There is no agreed definition of what the business requires from IS," it said.
The FSA said, "As mentioned in our annual report, the FSA has recognised the scope for improvement within its information systems division.
"Action has been taken to address a number of the identified shortfalls in performance and a wide-ranging programme to review and upgrade processes has been embarked upon.
"Changes have been and will continue to be made during the coming year."
Orbys proposed that a new management team be appointed by the end of 2005 and that the FSA develops a new sourcing strategy within the same timeframe.
The FSA placed an advert for an outsourcing contract in a European journal in August.
IT staff praised
Staff in the Financial Services Authority IT department won praise from the Orbys review team for their technical skills.
Orbys identified "good technical staff in many areas" who have "strong technical skills and some good processes for defining requirements, developing code, testing and implementing systems".