Don't over-prune back office functions, FSA warns firms

Don't over-prune back office functions, FSA warns firms

Over-pruning back office functions could be a dangerous course of action for firms to take, Financial Service Authority Chairman Howard Davies warned today.

Speaking at the London Human Resource Group Conference, he said: "Over the past year, on behalf of the old self-regulators, we have disciplined a wide range of institutions, many of them household names, for back-office administrative failures such as poor reconciliations, miscalculation or misapplication of dividends. The one common feature in these cases seems to us to be that firms were not giving a high enough priority to these important back office functions."

The FSA's Consumer Panel has forcibly hammered home to the watchdog the damage which poor administration and inaccurate record-keeping inflicts on consumer confidence. In instances where mismanagement of records has been proven, significant compensation has been paid to customers, Davies said.

Pointing to new training and competence requirements for operations staff and proposals to make senior management explicitly responsible for failures, Davies said that industry needs to pay much more attention to the back office than it has done so far.

"Unfortunately, there are some signs that they may be doing just the reverse." he said. "As margins come under pressure and business growth slows, or as they seek to justify a merger, firms talk of pruning their back-offices. Of course costs must be cut when business volumes fall, but we warn firms now that over-pruning back-offices could be a dangerous course of action to take. Firms must resource, manage and train staff properly in these essential functions."

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