Enforcd RegTech Blog - Regulatory Thinking and News

Bank technology: big opportunity, big risk

By The Enforcd Team

Banks are turning to technology to provide convenience, save money and drive growth, but as TSB recently found out, when things go wrong it’s easy to fall foul of the law.

Last week began with news that TSB’s computer system had crashed. Since then events have followed a repeating pattern – spokespeople for TSB claim systems are back up and running before, their customers take to social media to confirm they are not.

The saga has given their reputation a beating and, unsurprisingly, attracted the attention of regulators.

System collapse

The Information Commissioner announced that they had started making enquiries and, given what we know about the problems so far, this could be just the start. Back in 2014 RBS was fined for what regulators deemed an unacceptable software failure which left millions of users unable to access accounts. The FCA issued a fine of £42million and the Prudential Regulation Authority penalised the bank a further £14million.

TSB’s problems are, if anything, worse. Computer failures meant some customers were unable to access their money while others viewed information and money belonging to other people. Many of those who could access their accounts couldn’t make a transaction. It’s an issue which goes far beyond simple inconvenience and raises serious concerns about trust, the safety of data and the bank’s reputation.

TSB’s problems highlights the problems older banks face when implementing major IT projects. It follows a weekend in which it shut down its online and mobile banking services while it transferred 1.3bn customer records from its former parent company Lloyd’s Bank PLC.

Making major software transitions can become an incredibly complicated issue thanks to arcane, and complex webs of legacy systems older banks have developed over the years. Layers of complexity may have been added over the years making it difficult to ensure a new system can operate smoothly.

Reputational impact

While TSB may already be bracing itself for a hefty fine it will be the impact on its reputation and relationships with customers which will really create problems. Technology is everywhere in banking. Branches are closing around the country as online and mobile banking moves to the fore. But while it brings convenience it also leaves customers vulnerable if anything goes wrong.

New laws such as GDPR as well as the rise of cyber-crime will put enhance the scrutiny on banking IT systems. They must adhere to stricter standards to satisfy the regulators and maintain tougher security to keep out cyber-criminals and when things do go wrong they must have adequate disaster recovery schemes in place.

This is a lesson TSB is learning the hard way. Initially, it claimed the problem was quickly resolved and only impacted a relatively small number of people, but as the week rolls on complaints keep coming. So far, up to 1.9million people are experiencing problems and it’s hard to avoid the conclusion of a bank which was unprepared for the problem. In a world in which data security is paramount, TSB’s customers have every right to be concerned.