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

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.


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