U.K. regulator warns of risks in offshoring to India
By agencies   |   Friday, 06 May 2005, 19:30 IST
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MUMBAI:The financial regulator has warned that offshoring operations to India carry potential risks because it is difficult for management to achieve sufficient oversight and controls from the U.K. The Financial Services Authority, which visited 10 operations in Mumbai and Bangalore providing services for U.K. banks and insurers, concluded offshoring "can contribute a material risk" to the FSA's objectives of maintaining market confidence and consumer protection, Financial Times reported. The FSA also raised questions about the high level of staff turnover at Indian companies, which, it said, were less likely to have contingency sites in the event of a serious problem. However, the FSA concluded that there was "no evidence" to suggest consumer data are at greater risk in India than in the U.K., the report said. Companies including Prudential, HSBC, Lloyds TSB and Aviva have outsourced work to centers in India. The FSA said it had observed a "high level of security" in India and most companies had swipe entry clearances to their premises - one had an airport-style detector. It concluded that despite the risks, companies offshoring work to India were aware of the potential risks and were taking measures to mitigate them. While cost advantages were the initial impetus for offshoring, many financial services firms say they will, due to other benefits, continue offshoring to India almost regardless of the economic environment. They state that, with most of the staff graduates, the quality of work is extremely high. The FSA report said: "It is important that even as this mode of operation becomes more common, the risks remain under such scrutiny. "Not least since the impact of offshoring greater volumes and more complex functions will affect the firm's risk profile, particularly in relation to its operational risks," the report added. The regulator said there was no shortage of suitable recruits in India, with 2.5m English-speaking graduates a year. It had listened to calls made at most locations and was "impressed" by the caliber of staff. However, it pointed to concerns about the high level of staff attrition - although it did see some companies where turnover was low. Non-voice processes, including back-office functions, had about 10 percent staff turnover compared with 30 percent of staff that answer calls. The FSA said staff leaves to pursue higher education or to get married - women are not permitted to work after they marry or they move to where their husband is located. The report said the high cost of office space meant few companies could offer contingency sites in the event of an emergency. The FSA said most companies had the capacity to repatriate work back to the U.K., which was important for smaller operations. It said: "If companies have had their fingers burnt through offshoring, then the likelihood is that they leapt on to the offshoring bandwagon without having the correct procedures in place."

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