The Cloud is hovering this Summer

Outsourcing in financial services has a real chequered history. Successful outsourcing has been matched by unsuccessful outsourcing, resulting in doubt on its benefits by the majority of financial services firms. More people than I can remember have said to me over the years that outsourcing just doesn’t work, there are far too many risks and the cost savings have never been proved. Indeed in many cases cost savings have never materialised and in some cases, actually increased.

I remember when I was boxed in a corner and forced to make a decision to outsource the private client back office to a well-known outsourcing provider, back in 1996. The reason to outsource was that the Director of the back office operation had failed to appreciate the system developments needed for CREST and too late in the day a decision was made to outsource to the Bank of Scotland but this failed and I had to step in to make the switch to an alternative. This was a crisis decision and one I think was replicated by many during that period as the outsourcing provider picked up plenty of business.

One consequence that eventually hit was that the switch increased the overall back office operational budget by almost 100%. The reason was that there was no saving on back office staff, just retraining and a loss of control of costs as the outsourcing provider was able to charge for just about everything it was involved in and that was everything!

After initial teething troubles the provider actually did a quite reasonable job but there was no reverse mechanism and the firm was tied in. Similar stories have been repeated throughout the industry and of course word gets round and so this type of outsourcing, has slowed almost to a halt.

Today however, it’s a very different matter with new technology like Cloud Computing and SaaS which are bringing new possibilities for outsourcing. I hear of new vendors almost daily moving towards a SaaS offering or different forms of the Cloud. What about security?  I can almost hear the clamour as I write this. Quite frankly there are security issues with every firm in the industry without Cloud, so security is not a barrier to Cloud or SaaS solutions, just a jumpable obstacle.

There is no doubt that with regulatory pressure increasing and legacy systems statuesquely remaining cumbersome to comply or even support business development, the overlay of a Cloud solution and SaaS would provide an immediate improvement and move forward by firms to break the strangle hold of legacy systems and processes.

I was really encouraged recently to hear of the plans of one the industries heavyweights and pillar of suppliers to the market, that it has advanced their Cloud and SaaS plans. SunGard are not only thinking out of the box but are coming up with realistic internal plans, which are bound to be welcomed by many as genuine solutions enabling the rebirth of outsourcing for all types of firm, not just for tier one banks but tier two and three sized firms. However, my big hope is that these types of outsourced solutions move into the buy side firms and the retail investor.

These issues and more will be discussed at the coming Post-Trade Forum hosted by the London Stock Exchange on the 29th September. Alistair Reid one of the industry’s most knowledgeable experts on outsourcing will be giving the keynote. He has seen all sides, from helping to create and selling outsourcing solutions to choosing to buy an outsourced offering. In this new climate, his address is bound to be informative and fascinating and will surely inspire many questions and responses during the debate that follows.