Bank of England risk assessment system, a fail in the making

Bank of England risk assessment system, a fail in the making

Summary: The Bank of England is under intense scrutiny following allegations of market fixing by Barclays. Now it wants to ramp its risk assessment. Here is why it will fail.

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Image credit: Steve Bell, The Guardian

The Barclays Bank LIBOR price fixing scandal is reverberating around the world. Rumors of dodgy dealings between British politicos and the Bank of England, implying thinly disguised leaning by the Bank of England on Barclays all add to a plot as intriguing as any pot boiler. Everyone is denying everything and so far Bob Diamond, CEO Barclays falling on his sword and foregoing £20 million ($31 million) in deferred bonuses has done nothing to assuage public outrage. This is a story that will run and run with implications for many institutions. 

In and among the going on, the Bank of England has quietly announced a £2.5 million ($3.9 million) plan to revamp its risk assessment systems. ComputerWorld UK has the details:

The Bank of England (BoE) is planning to implement an IT system before the end of 2012 to assess the risk of firms operating in the financial sector.

The announcement comes amid the LIBOR-fixing scandal by banks such as Barclays that is currently rocking the financial services sector, which has put the BoE's risk assessment systems into question.

It is estimated that the system will cost up to £2.5 million and allow the BoE to record firms’ risk scores, whilst also providing the capability to analyse and report on risk assessments.

The BoE also wants the capability to analyse firms by time series, peer group or sector, and be able to drill-down and aggregate within firm structures and generate advanced visualisations and management reports.

Vendors must also be able to integrate the system with the BoE’s document management system, FileSite, in order to refer back to stored documents.

So far so good although a search on the BoE tenders website suggests this won't go live before 2013. But then we come to the puzzler in the piece:

Development and implementation is planned to be split over two phases, with the first to commence by the end of 2012. The second phase will follow after the BoE has gained some experience operating the system, which may influence how the second phase of development carries out...

...Responses to the Bank’s tender will be reviewed by a panel that will include individuals both from the BoE and the Financial Services Authority (FSA).

The contract will initially run for a three-year period, with the option to extend for two further years.

All for £2.5 million and no mention of independent experts to advise?

So here we have a lender of last resort, knowing it needs to revamp a critical system. It has decided how much to spend. has not received tenders for the project and knows the timelines over which it will happen. All in the middle of a crisis of confidence that goes to the heart of the British - and perhaps other - economies?

If that's not pre-announcing open season for less than scrupulous bankers willing to tiptoe over the fine line between right and wrong dealings then I don't know what is.

What on earth were they thinking? We'll find out in the fullness of time but I am betting it won't be pleasant and that Michael Krigsman will have something to say - after the project fails.

Topics: Banking, Enterprise Software, Security

Dennis Howlett

About Dennis Howlett

Dennis Howlett is a 40 year veteran in enterprise IT, working with companies large and small across many industries. He endeavors to inform buyers in a no-nonsense manner and spares no vendor that comes under his microscope.

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  • All for £2.5 million and no mention of independent experts to advise?...

    Good point and nice to hear from the tech side and we need a few more to speak out as I have been calling all of this activity "The Attack of the Killer Algorithms" as you can't do this stuff without the algorithms. I wrote a post 3 years ago asking if the US needed a Department of Algorithms or something along that line.

    There are code modules and structured query language queries written for both "accurate" and "desired" results and the 2 should be the same, but read the news and it doesn't seem to be that way with the "desired' results code winning out and moving money. The good thing now though is we are questioning it and things are coming out. We see CEOs like Dimon at JP Morgan now who get up in front of the whole world and say "I don't know", not a good sign..coders rule and the algorithms running on servers 24/7 make life impacting decisions about all of us.

    We need a bit more accuracy versus the desired end results and maybe the two will be the same someday if someone verifies how they are written. I started my series on the Attacks just to help educate consumers on the fact that "the algorithm did it" with every day examples. One other item to note with the "desired" results is that we are now dumping more "flawed" data into the systems too, and that's another battle of its own that also bites us right and left.
    MedicalQuack
  • Define failure....

    Den,
    I think having the family around you has dulled your cynicism; i.e. a system that enables transparency and disable the cronyism and special deals might not be what the customer and users want :)

    I did like the suggestion that all communication regarding libor be recorded via something like yahoo groups, if only because it appears to be the only way to stop their slow steady decline !! - http://www.cringely.com/2012/07/10/put-libor-on-yahoo-groups/

    hth
    martin.english