FSA endorses offshoring

The Financial Services authority has issued an endorsement to offshore operations for financial institutions, despite heightened data security fears

An investigation into the offshore operations of leading UK financial institutions claims consumer data is at no greater risk in India than in the UK.

Banking regulator the Financial Services Authority (FSA) gave the clean bill of health after visiting and reviewing 10 offshore operations of the biggest UK retail banks in Bangalore and Mumbai.

The report warns that offshoring can contribute a material risk to market confidence, financial crime and consumer protection but the FSA said it is happy with the levels of governance and risk management it found at sites in India.

The FSA said it observed high levels of security in the Indian operations it visited and that they are often far more controlled than in the UK. One example cited is employees being given numbered paper to write notes on during the day which are then handed in before staff leave so all the paper is accounted for.

"Offshoring is not inherently more risky than outsourcing domestically provided that there is suitable risk monitoring. There is no evidence to suggest consumer data is at greater risk in India than in the UK," said the report.

Staff attrition and business continuity planning concerns are mentioned in the report but the FSA found these concerns had been factored into offshore recruitment and operational policies.

In line with a separate report out today by analyst Datamonitor, the FSA also found that financial services firms in India are increasing the amount of work offshored due to greater confidence and internal demand from other parts of the business.

"While in the early days much time is spent convincing business to consider moving part of their operations, now many firms have reported an excess of demand. As a result, some have taken a conscious decision to cap the amount of work that can be sent offshore," the FSA report said.

Responding to the FSA report, the National Outsourcing Association (NOA) warned that those who leap on the offshoring bandwagon without putting the right procedures in place are likely to get their fingers burnt.

"Offshoring does not mean 'out of sight, out of mind' and saving money into the bargain. Often the ante on management procedures has to be upped in offshoring environments — this doesn't mean that organisations will not be able to realise cost savings. It is just that they may not be as much as first thought," an NOA statement said.