RBS Fined GBP 56M by FCA & PRA for 2012 IT Breakdown
The Royal Bank of Scotland Group plc (RBS) has been hit by a fine again. A week after being fined for foreign exchange rate manipulation, the company agreed to a settlement regarding the 2012 IT incident that left customers unable to use banking facilities at Royal Bank of Scotland and its subsidiaries – National Westminster Bank Plc (Natwest)and Ulster Bank Ltd.
As per the settlement, Royal Bank of Scotland will pay £56 million in aggregate to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) in UK. Of the total penalty amount, the FCA will receive £42 million, while the PRA would get £14 million.
Notably, as the company agreed to settle the matter at the earliest, it was entitled to a 30% discount on the actual penalty amount. Further, the regulators acknowledged the fact that Royal Bank of Scotland has already paid £70.3 million in redress to UK customers and another £0.5 million to individuals and firms who were not customers.
Earlier this month, the Central Bank of Ireland had fined Ulster Bank EUR 3.5 million in relation to the same incident.
Incident
In Jun 2012, Royal Bank of Scotland’s Technology Services department had upgraded the software that processed customer account updates overnight. However, after noticing some problems, the department decided to remove the upgraded software without considering the consequences.
Technology Services failed to realize that the upgraded software was not compatible with the earlier version. This caused disruption in the customers’ ability to use banking facilities.
In fact, trouble at Royal Bank of Scotland and Natwest systems continued for more than a week, while Ulster Bank system remained out of bound for almost three weeks. Further, disturbances in other systems continued for almost 45 days.
This affected over 6.5 million customers, with 92% of these being retail clients. During the period of disruption, the customers were neither able to use the online banking facility nor could they derive actual account balances from ATMs.
Moreover, with normal banking activities facing a halt, many clients failed to make mortgage payments. Further, many other firms were unable to fulfill their payroll commitments or finalize accounts. As a result, Royal Bank of Scotland and its subsidiaries applied inaccurate debit and credit interests to the customer accounts and provided erroneous bank statements.
Findings & Measures Undertaken
The UK regulators found that Royal Bank of Scotland lacked proper systems and controls to manage exposure to IT risks. The company did not have adequate test procedure for managing software upgrades. Further, the company did not invest much on designing systems that would have withstood or minimized the effect of a disruptive incident.
In 2013, Royal Bank of Scotland announced that it is increasing investments in IT spending by £750 million. The company intends to boost the security and resilience of its IT systems. Moreover, the company has made significant improvements in its mobile banking application software.
Substantial changes have been made in the batch-processing system which caused the main failure in 2012. Since Mar 2014, Royal Bank of Scotland has put in place 4 separate batch processing for NatWest, RBS, Ulster Bank NI and Ulster Bank ROI. This has considerably lowered the chances of a single incident impacting all the banking units.
Additionally, Royal Bank of Scotland issued an apology and stated that as part of its review action, bonuses of 16 employees were slashed. This resulted in pay cuts amounting to £6 million.
Currently, Royal Bank of Scotland carries a Zacks Rank #1 (Strong Buy). Some other foreign banks worth considering include UBS AG (UBS), Banco Latinoamericano de Comercio Exterior, S.A (BLX) and ItauUnibanco Holding S.A. (ITUB). All these stocks hold a Zacks Rank #2 (Buy).
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