Head up [you know where]: UK gov't tells banks to fix IT systems

Head up [you know where]: UK gov't tells banks to fix IT systems

Summary: Solving bank IT breakdowns requires substantial investment that goes beyond administrative demands.

TOPICS: Banking, CXO

Regulators at the Financial Services Authority (FSA) are investigating the recent IT failure at RBS, one of the UK's largest banks, after technical problems caused serious disruption to the bank's operations and inconvenienced millions of customers.


According to reports, the government may levy a substantial fine, perhaps in the tens of millions of British pounds, on RBS as a penalty.

Also Read:
RBS Bank joins the IT failures 'Hall of Shame'
Key questions on the massive RBS / NatWest IT failure

According to the Financial Times, RBS expects to receive the, "first UK regulatory fine for a direct IT failure." The paper adds:

The FSA is planning to tell UK banks to check that their systems are not vulnerable to severe outages and to modernise any that could pose a risk to customers.

Although the government response is welcome, it seems to ignore the large number of IT failures that regularly occur in the UK. It is hard to understand why it took so long for regulators to wake up and recognize that IT failures are a critically important issue.

Also Read:
Worldwide cost of IT failure (revisited): $3 trillion

Although I am not usually cynical, this time I turn to the following photograph as a reasonable explanation. The photo is floating around the Internet and can be found on many sites, so no attribution is not possible:

UK government tells banks told to fix risky IT systems

According to research firm, Celent, IT investment by banks is declining. In a report titled, IT Spending in Banking: A Global Perspective, the company states that banks in Asia-Pacific will increase spending by 6 percent in 2012. However, banks in Europe will grow IT spending by only 0.3 percent during this time period, creating a problem in the coming years.

The report adds:

Of the total investment in IT in 2012, a whopping 77.6% goes to maintenance. European banks are having the most difficulty in reducing their maintenance spending.

Banks will need to spend on new investments, at least partly as a result of needed system upgrades. Frequently, financial institutions are running systems that are too obsolete, too slow, and inflexible. Systems like these are impediments to achieving optimum operational efficiency as well as to developing products.

If these assertions are accurate, then regulators are wasting their time ordering banks to prevent IT failures. Serious efforts to address the problem must require banks to significantly increase spending and investment in core IT systems. Increasing non-maintenance investment in systems and processes is the only way to prevent future IT failures in the banking sector.

Topics: Banking, CXO

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  • So long as the fine

    isn't paid by the taxpayer, who owns about 84% !
    • Either taxpayer or customer,

      But we've seen the pattern before -- company does wrong, backdoor kissing takes place*, and everyone else pays for their mistake. Especially if they lull customers or other people to do something; authority figures do have a responsibility. We're not allowed freedom to fail, so why should they get it (time and again)?

      * it's "kissing takes place behind closed doors" - any other meaning is entirely coincidental
  • Bring back proper punishments

    1. A sign of the times that the Government can decide quickly to levy a big fine for an accident ... but deliberate corruption, like fiddling the LIBOR rate, will probably take years to investigate ... after which it will be difficult to decide who to fine.
    Of course UK politicians couldn't even fiddle their expenses, so understanding International Finance and Global Corporate IT will clearly be beyond them.

    2. Telling the banks to fix IT systems seems unreasonable - where are they going to get a modern cloud system: AMAZON? Microsoft? Google? Flawless records all.

    3. 77% on maintenance. Definitely need a new cloud system: all ZDNET pundits tell me huge cost savings can be made there by state of the art expert handling ...

    4. ... but if that's so ... then shouldn't costs come tumbling down in line with Moore's Law?

    5. "It is hard to understand why it took so long for regulators to wake up ..." Indeed, if one were cynical then the total failure of the FSA to act before all the major financial disasters in the last 25 years suggests that they are being paid to sleep.

    6. If one is not cynical in the face of Western banking corruption, then one has lost one's critical faculties.

    7. At the time of your archeological find I believe the Romans used a V instead of a W ... in order to replace B's with W's in the initial letters of some nouns.

    The way I think the Government should handle the banks is to launch two processes: the first to change the law to punish banking corruption; the second to determine the guilty parties. The sort of measures I'd like to see are:
    a. The likes of Bob Diamond will have their entire wealth returned to HMRC and spend a year in jail, after which he might understand the impact of his deeds.
    b. Windfall taxes on all banks to recover consumer losses, say for the 25 years.
    c. Corporations or individuals guilty of significant tax evasion to be subject to the provisions of b. Starting with Tony Blair.
    d. Those who seek to avoid the new laws above to be executed in Tower Of London. A new National Lottery to be introduced to decide who has the pleasure of wielding the axe.

    Sorry, I have to go back to the real world now and watch the footie in The Olympics, before the Internet melts that is ;-)
    • Obfuscation is 9/10ths of the law...

      Great post for pointing out most relevant details, thank you!

      Especially point 2 - banks, in some ways, are caught in the middle and buy into promises the companies they use claim.
  • I see ...

    ... the Robbing Bank of Scotland is on its arse again.
    Better Twitter it ... oh that global system is down too?
    What we really need to move towards is an architecture where a few major companies with crappy IT keep all our money.