How financial services is tackling its ‘existential skills crisis’

In Jan­u­ary 2020, Mark Hoban, chair of the UK Finan­cial Ser­vices Skills Com­mis­sion (FSSC), warned that the sec­tor was fac­ing an “exis­ten­tial skills cri­sis”.

At the time, the for­mer employ­ment min­is­ter was chair­ing the Finan­cial Ser­vices Skills Task­force, an inde­pen­dent body formed by the Trea­sury to explore how the UK could retain its world-lead­ing sta­tus in the sec­tor. It iden­ti­fied key prob­lems, includ­ing a lack of diver­si­ty (see pan­el, xxxx) as well as the skills gap that Hoban high­light­ed, that were putting the nation’s com­pet­i­tive­ness in finan­cial ser­vices at risk.

The FSSC was duly cre­at­ed in the spring of 2020 to tack­le such chal­lenges but, just over two years lat­er, the indus­try still seems to be strug­gling. Recent research by Talent.com sug­gests that the dif­fer­ence between the num­ber of vacan­cies and the num­ber of trained pro­fes­sion­als to fill them grew by 40% in 2021. 

A key rea­son for this has been the com­bined impact of Brex­it and Covid on inter­na­tion­al recruit­ment in a sec­tor that’s tra­di­tion­al­ly relied heav­i­ly on for­eign tal­ent. But so is the fact that the pan­dem­ic has prompt­ed many employ­ers to start onshoring jobs, par­tic­u­lar­ly tech-relat­ed ones, to address con­cerns about secu­ri­ty and oper­a­tional resilience. 

That’s the view of Claire Tun­ley, the FSSC’s chief exec­u­tive, who notes that anoth­er Covid-relat­ed prob­lem is that old­er employ­ees have been leav­ing the indus­try at a high­er rate than nor­mal. 

More­over, wage infla­tion brought about by the sector’s deep­en­ing labour short­age is fuelling an increase in staff turnover, which is fur­ther exac­er­bat­ing the sit­u­a­tion.  

Last year, 92% of the FSSC’s mem­ber com­pa­nies were strug­gling to fill vacan­cies, accord­ing to its March research report, Mind the Gaps – skills for the future of finan­cial ser­vices 2022. 

The paper also states that the indus­try is par­tic­u­lar­ly lack­ing in five key skills. Three of these are tech­ni­cal: dig­i­tal lit­er­a­cy, which needs to be devel­oped across the entire work­force; and more spe­cialised exper­tise in the form of data ana­lyt­ics and soft­ware devel­op­ment. The oth­er two are ‘soft’ skills – coach­ing and cre­ative think­ing – that the FSSC deems cru­cial in aid­ing inno­v­a­tive prob­lem-solv­ing and staff reten­tion. 

But Den­nis Khoo, author of Dri­ving Dig­i­tal Trans­for­ma­tion: lessons from build­ing the first Asean dig­i­tal bank, believes that process design skills should be added to the list. 

“You can’t apply tech­nol­o­gy effec­tive­ly unless you have good process­es under­neath,” he says. “Under­stand­ing how process­es sup­port out­comes is para­mount.”

Whether the FSSC would agree with Khoo’s assess­ment or not, it is wide­ly accept­ed that the key fac­tors behind all these skills gaps are, as Tun­ley says, “tech­no­log­i­cal change and dig­i­tal­i­sa­tion because of how peo­ple are engag­ing with finan­cial ser­vices, par­tic­u­lar­ly since the pan­dem­ic start­ed. This is pro­duc­ing more data, which cre­ates a need for more ana­lyt­ics, which in turn leads to more dig­i­tal prod­ucts and ser­vices. And so it goes on.”

In bank­ing, there is anoth­er prob­lem­at­ic fac­tor, accord­ing to Simi Dubb, direc­tor of col­league expe­ri­ence and inclu­sion at Metro Bank. She says that the ongo­ing clo­sure of branch­es has meant that cus­tomers are expect­ing more from their online bank­ing ser­vices at a time when com­pe­ti­tion for dig­i­tal skills on the wider mar­ket is already fierce.

As a result, “we’ve all had to put on data, dig­i­tal and cus­tomer lens­es when look­ing at roles, because the future of bank­ing will be less about tra­di­tion­al rela­tion­ship man­age­ment and more about pre­dict­ing what self-ser­vice dig­i­tal prod­ucts and ser­vices cus­tomers will need”, Dubb says. “This is where the idea of reskilling and upskilling comes in.” 

Her view is shared by the FSSC. It believes that, giv­en the sig­nif­i­cant shift in the types of skills required, the indus­try can­not solve its short­age sim­ply through recruit­ment alone. 

Tun­ley notes that the indus­try was fail­ing before the pan­dem­ic to offer peo­ple much train­ing beyond core top­ics such as reg­u­la­to­ry com­pli­ance. As a result, it has fall­en behind oth­er sec­tors at a time when intense com­pe­ti­tion for dig­i­tal skills in par­tic­u­lar is start­ing to become a “block­er” to inno­va­tion and growth. 

To ram home the point about the need for more train­ing, the FSSC pub­lished a report at the start of this year called Reskilling: a busi­ness case for finan­cial ser­vices organ­i­sa­tions. The paper indi­cat­ed that com­pa­nies could achieve cost sav­ings of up to £49,100 per head by retrain­ing redun­dan­cy-threat­ened employ­ees for new roles that would have required exter­nal recruit­ment. Despite this com­pelling busi­ness case, the indus­try has tend­ed to make redun­dances and hire anew, rather than retain and retrain. 

“With 1 mil­lion peo­ple work­ing in UK finan­cial ser­vices, you can­not turn over the entire work­force,” Tun­ley says. “About 80% of the industry’s cur­rent work­force will still be in employ­ment in 2030. Giv­en that only 20% will be new join­ers, employ­ers will have to retrain exist­ing staff to obtain all the new skills required.” 

In oth­er words, the foun­da­tion­al skills of the pro­fes­sion are no less valu­able than they ever were. They “just need enhanc­ing if you’re want­i­ng to add new dig­i­tal ser­vices”, says Tun­ley, who adds that, “if you only recruit exter­nal­ly, you don’t get all the knowl­edge you need in terms of inter­nal process­es. It’s why you need both approach­es.”

Tun­ley acknowl­edges that retrain­ing won’t offer a quick fix, as it requires a “clear, well-struc­tured plan and a long-term com­mit­ment”. Nonethe­less, she believes that mean­ing­ful change is afoot.

“We said a cou­ple of years ago that there was an exis­ten­tial cri­sis and the indus­try had to act – and it is start­ing to,” she says. “Although it’s too ear­ly to say what impact that’s hav­ing, things are going in the right direc­tion.”

How to improve diversity, equity and inclusion 

One approach to solv­ing the skills short­age in finan­cial ser­vices is for employ­ers to seek tal­ent from pools they haven’t tra­di­tion­al­ly trawled. 

Near­ly 80% work­ers in the sec­tor are white, accord­ing to the Finan­cial Ser­vices Cul­ture Board (FSCB), an indus­try body formed from the Bank­ing Stan­dards Board in April 2021. Although data from the Office for Nation­al Sta­tis­tics sug­gests that only 14.4% of peo­ple in the UK are mem­bers of an eth­nic minor­i­ty, the per­cent­age ris­es steeply in cities. In Lon­don, for instance, it’s clos­er to 40%. This means that finan­cial ser­vices firms are often fail­ing to reflect the diver­si­ty of com­mu­ni­ties in the urban areas where they tend to oper­ate.

“When we asked them what could be done about this, they sug­gest­ed: ‘Hire more diverse peo­ple and ensure that there are more staff who look like me,’” reports the FSCB’s senior ana­lyst for assess­ment and insights, Pollyan­na Wardrop. 

But the indus­try also faces oth­er, less imme­di­ate­ly obvi­ous, chal­lenges con­cern­ing its lack of diver­si­ty, equi­ty and inclu­sion. For instance, although women of all back­grounds com­prise 52% of the UK’s total finan­cial ser­vices work­force, the pro­por­tion of senior man­agers who are white women is only 29%. Mean­while, women from eth­nic minori­ties occu­py 6.5% of oper­a­tional roles, but a mere 2.7% of senior man­age­ment jobs.

Even Metro Bank, where 45% of employ­ees come from eth­nic minor­i­ty com­mu­ni­ties, acknowl­edges that they aren’t so well rep­re­sent­ed in the organisation’s upper ech­e­lons. This sit­u­a­tion tends to be down to shifts at key “life tran­si­tion points”, such as child-rear­ing, accord­ing to Simi Dubb, the bank’s direc­tor of col­league expe­ri­ence and inclu­sion. 

“The chal­lenge is to ensure that we have the right infra­struc­ture and inclu­sive cul­ture to sup­port peo­ple through these tran­si­tions. We also need to reskill them con­tin­u­al­ly so they can progress in their careers”, she says. Doing so is vital not only to ensure that “diverse tal­ent has an oppor­tu­ni­ty to thrive”, but also to aid staff reten­tion. 

Kate Coombs, the FSCB’s head of insights, agrees. The board’s research has found that female employ­ees from eth­nic minori­ties feel less includ­ed than respon­dents in any oth­er cat­e­go­ry, she reports, adding that lit­er­a­ture from Lon­don Busi­ness School indi­cates that people’s sense of belong­ing to their employ­er – or the lack there­of – is a pre­dic­tor of its attri­tion rates.  

“Also, the antic­i­pa­tion of belong­ing indi­cates a will­ing­ness on the part of a poten­tial can­di­date to apply,” Coombs says. “From there, you can extrap­o­late its impor­tance to the hir­ing pipeline.”

Just as vital is that peo­ple feel that they’re being lis­tened to, she notes. This is “super-impor­tant to enable cul­ture change”. Also, “lis­ten­ing and ‘psy­cho­log­i­cal safe­ty’ – where­by line man­agers cre­ate a con­struc­tive, shar­ing envi­ron­ment – are high­ly cor­re­lat­ed”. 

All of these fac­tors put pres­sure on line man­agers to up their games. Coombs believes that this will require “a shift at all lev­els in how they are trained, devel­oped and sup­port­ed. This will entail a lot of invest­ment, because you can’t just assume that they’ll mud­dle through.”