RBS fined £56m for IT breakdown by Jill Treanor

22/11/2014 07:44

6.5 million customers at Royal Bank of Scotland, NatWest and Ulster Bank affected by computer meltdown in June and July 2012

Royal Bank of Scotland has promised that there will be no repeat of the June 2012 IT meltdown that left 6.5 million customers locked out their accounts for days and led to Thursday’s £56m fine.The bank, which is 81% owned by the taxpayer, also issued an apology and said it had docked £6m in bonuses from staff after the collapse of the IT systems which affected customers at RBS, NatWest and Ulster Bank.

Regulators pointed out that the 6.5 million people affected represented 10% of the population, while RBS insisted it was spending £750m to ensure it would not happen again.

In the latest hit to RBS’s reputation, just eight days after it was fined £400m for allowing foreign exchange markets to be rigged, regulators said the bank had suffered from failures at many levels and failed to keep its computer systems up to date, despite spending £1bn a year on technology.

Andrew Tyrie, the Conservative MP who chairs the Treasury select committee, said IT outages were unacceptable.

“They erode the public’s trust in banks,” Tyrie said. The business secretary, Vince Cable, described it as a disastrous fine.

The fines were levied by the City regulator, the Financial Conduct Authority, which imposed a £42m fine; and by the Bank of England’s regulatory arm, the Prudential Regulation Authority, which used new powers for the first time to impose a £14m fine.

Publishing its reason for the fines, coming towards the end of what is already a record year for penalties imposed by the FCA, the regulator said the potential for problems had been raised in an internal audit two years before the incident took place in 2012.

The PRA said disruption to the majority of RBS and Natwest systems lasted from 20 June until 26 June, and Ulster Bank systems until 10 July. The watchdog was concerned that “the IT incident had the potential to have an adverse effect on the safety and soundness” of the bank.

Sir Philip Hampton, RBS’s outgoing chairman, said the IT failure showed unacceptable weaknesses and caused significant stress for customers.

“As I did back then, I again want to apologise to all customers in the UK and Ireland that we let down two and a half years ago,” he said.

The problem arose when a systems upgrade went wrong and staff tried to return to the original system without considering the consequences.

Simon McNamara, the newly-appointed chief administration officer, said the problem would not reoccur.

“I can pretty much guarantee that incident will not happen again because of the actions we’ve taken subsequently,” he said, adding that he could not promise there would not be another IT accident for different reasons.

The issue has highlighted the potential fragility of other banks, and the FCA has recently repeated an exercise it conducted in 2012, asking bank bosses about the steps they have taken to ensure they did not suffer similar problems.

Iain Coke of the Institute of Chartered Accountants in England and Wales (ICAEW), said banks also needed to ensure their IT systems were able to withstand cybercrime.

“Old, fragile IT systems are a feature across a number of banks, not just RBS. This issue is rising up the agenda of many boards, but as this experience shows, replacing them is not easy. Updates create their own risks, and can trigger system failure,” he said.

RBS had already set aside £175m to cover the cost of the IT break down. About £70m was used to pay redress to its own customers and £460,000 to customers of other banks.

A review into the actions of 64 individuals took place. Of those, 16 - including the former chief executive Stephen Hester - either waived their bonuses or had them cut as a result, leading to a £6m cut in pay.

Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “The problems arose due to failures at many levels within the RBS Group to identify and manage the risks which can flow from disruptive IT incidents and the result was that RBS customers were left exposed to these risks.”

Read more:https://www.theguardian.com/business/2014/nov/20/royal-bank-of-scotland-it-breakdown-56m-pounds-fine