Retired banker criticises banks for outsourcing their back-office operations

Last Saturday (15 Aug), retired banker Raymond Koh Bock Swi wrote to ST Forum urging the government to examine the workforce composition in banks operating in Singapore (‘Retired banker: Common market knowledge that some banks sideline SG talents‘).

Mr Koh wrote, “As a retired senior banker, I can say categorically that in the past two decades, many foreigners hired in Singapore’s finance sector have been for upper-middle to senior management positions.”

“Once hired, these foreign staff can easily and in a short time secure their permanent resident (PR) status in Singapore. Therefore, when analysing the actual makeup of local staff, it is misleading to combine the Singaporeans and PRs.”

Mr Koh was refuting what the banks told the media recently that they do maintain a strong local core in their workforce.

Today, another retired banker, Roy Lim Cheow Kwan, also wrote to ST Forum highlighting some of the bank practices which are disconcerting to Singaporean job seekers (‘Forum: Some banking sector trends not helpful to Singapore‘).

“Over the past two decades, many banks have been outsourcing their back-office operations to developing countries in the pursuit of cost savings,” Mr Lim said. “The flip side of this move is that basic understanding and fundamental banking skills are lost among the younger generation of bank employees.”

He noted that Singapore will eventually be dependent on other countries to function as a financial centre with such practices. “Any disruption in those countries will directly affect the daily operations of banks here,” he added.

Mr Lim opined that moving these critical functions back would give the banks better control of the banking transactions overall.

He gave an example of bills of lading – lists giving details of the goods that a ship is carrying. They are always issued on security paper, and trained personnel can detect a genuine one from a fake one just by looking at and feeling it, he explained.

“Once the operation is outsourced, however, the employee concerned would no longer be able to tell the difference through his computer screen or faxed copies.”

He also observed that banks nowadays prefer to hire staff on a short-term contractual basis. “Not only would these short-term staff not feel a sense of belonging, but they would also find it difficult to plan their careers,” Mr Lim shared. “These trends are not conducive to developing Singapore’s precious manpower resource.”

Outsourcing failed DBS

Indeed, outsourcing a bank’s back-end operations to outside companies can carry considerable risks.

In 2010, DBS suffered a major IT outage knocking out its back-end computer systems, leaving its customers unable to withdraw cash from ATM machines. The outage affected all of DBS’ consumer and commercial banking systems (‘Singapore bank suffers massive IT failure‘, 7 Jul 2010).

DBS has essentially outsourced part of its IT operations to IBM. In 2002, DBS signed an outsourcing contract with IBM, which involved the transfer to IBM of 500 DBS IT staff. The scope of the agreement was broad, with IBM agreeing to “provide an integrated 24/7 customer help desk support, manage many of DBS’ current applications, and provide systems management disciplines across the bank”.

After the IT outage incident, the Monetary Authority of Singapore (MAS) took actions against DBS. In a press release, MAS blamed DBS, “We have determined that DBS Bank’s systems breakdown arose in part from the failure of the bank to put in place a robust technology risk management framework.”

“DBS Bank did not exercise sufficient oversight of the maintenance, functional and operational practices and controls employed by IBM. MAS therefore finds that DBS Bank has not adequately observed Sections 5, 7 and 8 of MAS Internet Banking and Technology Risk Management Guidelines,” it added.

“This incident has revealed weaknesses in DBS Bank’s technology and operational risk management controls. We have instructed DBS Bank to conduct an independent review of the incident.”

However, instead of asking DBS to consider moving some of the critical part of the outsourced IT operations back in-house for better management and control, MAS directed DBS to “diversify and reduce its material outsourcing risks so that it does not overly rely on a single service provider or a single vendor’s products and services.”

That is to say, MAS is asking DBS to outsource to even more vendors instead.