How financial services is tackling its ‘existential skills crisis’

It saw the shortage coming and has started to respond, but the UK industry is struggling so far to solve a problem partly of its own making

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 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.”

With 1 million people working in UK financial services, you cannot turn over the entire workforce

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.”