Jobs are emerging after the RBS IT meltdown, but will the UK really benefit?

A domino effect is starting; after RBS’s IT failure, the regulator is cracking down and forcing banks to upgrade their systems to guard against any future failure. Jobs are beginning to emerge in various institutions, but will banks really invest in capable, on-the-ground IT professionals or will cost-cutting take precedent?

The aftermath of RBS’s tech glitch, which locked millions out of their accounts and cost the bank £125m, is becoming clear. Yesterday, the Treasury Select Committee released a series of letters between its chairman Andrew Tyrie, Stephen Hester and the Financial Services Authority to address what caused the problem and what was being done to ensure it doesn’t happen again.

Hester’s response is apologetic, but still a little guarded. Offshoring definitely wasn’t the problem, he insisted, since the “routine software upgrade” was “managed and operated by our team in Edinburgh, which caused the automated batch processing software to malfunction”.

Rumours persist, however, that the error occurred because junior staff, inexperienced in the quirks of the system, were unable to take control quickly. In terms of whether “staff savings or outsourcing” of tech functions contributed, Hester only said that “the impact on business resilience of any cost saving measures” will be investigated.

Which brings us to the bigger picture. As the FT reported, the FSA has written to the chairman of major banks to ensure that a repeat of the RBS tech disaster doesn’t happen anywhere else, seeking reassurance on what has been done to “ensure the overall resilience of critical infrastructure and banking processes”.

We mentioned previously that this was likely to necessitate that banks speed up the simplification of their IT infrastructure, which could lead to jobs in the longer term. Recruiters suggest that this is already happening with RBS, Lloyds Banking Group and HSBC hiring for change management and business analysts in order to develop a strategy to minimise risks.

What happens, though, when it comes to taking on technical staff? The vast majority of banks have been increasing, or speeding up, their use of offshoring IT functions – RBS was a particular fan of this strategy – and this shows no sign of abating. These operations can be vast – HSBC has around 20,000 people in a captive centre in India spread across seven locations, for example.

Cutting corners can only go so far; for all the costs saved by wage arbitrage in offshore locations like India, cultural issues, data security and often expensive reworks present greater risks. What’s more, as Standard Chartered discovered recently, keeping enough oversight on offshore locations, even in captive centres, can be problem.

The reality is that nearshoring could to provide a solution – keeping jobs in the UK, but in lower cost destinations like Belfast, Edinburgh and Glasgow.