This week has opened with an outbreak of cognitive dissonance in my home country the UK. It opens with a worthy enough spirit and principle from the Treasury Select Committee of HM Parliament.
Regulators must act to reduce unacceptable number of IT failures in financial services sector, warns Treasury Committee.
There is an obvious flaw in the “Regulators must act” opening as we so often see examples of them being fast asleep although of course the official term for this is “vigilance.” Indeed I note that in the comments section last week the issue of regulatory capture had arisen again which for newer readers is where an industry infiltrates and takes control of its regulator. It does not have to be an industry as we see how HM Treasury alumni are every single Deputy Governor at the Bank of England which is officially “independent” of er the Treasury…..
Moving back to the issue at hand the TSC summarised it here.
The Treasury Committee launched its IT failures in the financial services sector inquiry on 23 November 2018. It followed a series of high-profile service disruptions within the financial services sector, most notably the TSB IT migration in 2018. Issues following the migration caused significant disruption to customers for a prolonged period of time, and we have an ongoing inquiry into Service Disruption at TSB1. There have also been many
other incidents, including those at Visa and Barclays.
They do not say it but the prolonged failure at TSB was especially embarrassing as it was supposed to be a new bank but in reality was a bureaucratic exercise exhuming it out of the bloated Lloyds Banking Group. So it turned out to have all the same and maybe worse problems than the other banks as its IT meltdown showed.
It was far from just being the TSB though.
IT failures, or incidents (used interchangeably), within the financial services sector appear to be becoming more common. Over the past 18 months there have been major
incidents at TSB and Visa, along with a litany of incidents at other firms. This increasing trend is recognised by the FCA, which stated in 2018 that “outages in the financial services sector are becoming more frequent and publicised” and that “the number of incidents reported to the FCA has increased by 187 per cent in the past year”.
This matters more these days as we switch to banking online.
Research by UK Finance found that 71 per cent of UK adults used online banking in 2017, and that this trend has been increasing. At the same time, the number of high-street
bank branches has been falling, with a 17 per cent reduction in the number of branches between 2012 and 2018.
The real issue here is the fact that the UK establishment have been happy to use taxpayer’s money and the policies of the Bank of England to provide a put option for banks and their management. The subsequent zombified banking sector has no great incentive to improve its IT which was so bad when the credit crunch hit that the Bank of England felt it could not cut interest-rates below 0.5%. This was because the creaking IT infrastructure could not handle 0% let alone negative interest-rates. When this did happen at the Cheltenham and Gloucester which was part of Lloyds Banking Group the work around was that the capital owed was reduced to save a 2001 A Space Odyssey HAL 9000 style moment from happening.
Next comes the idea of the Regulator acting quickly and decisively as Citywire points out.
Calls for the Financial Conduct Authority to offer ‘stronger and faster intervention’ are at least partially ‘justified’ the regulator’s chief executive Andrew Bailey has admitted.
There was this issue.
At the beginning of the year mini-bond manufacturer London Capital & Finance went bust after the FCA ordered it to freeze its accounts, following what appeared to be many years or warnings about the business.
Which led to this bit.
It remains unclear how the firm was able to promote unregulated mini-bonds via regulated Sipp and ISA wrappers for many years.
Sometimes it is so bad it is funny.
It also faced much ridicule after banning former Co-operative Bank chair and church minister Paul Flowers in 2018, five years after the organisation collapsed and the tabloids dubbed him the crystal Methodist due to his drug use.
More recently this has hit the headlines.
The shuttering last week of Woodford Investment Management after a series of big bets went sour and put it in breach of FCA rules on liquidity limits will be freshest in the mind.
Also in a rather familiar fashion the regulator seems to have overlooked this.
Former star fund manager Neil Woodford and his business partner reaped close to £20m in dividends in the last financial year amid a crisis at their investment house, according to an FT analysis ( Financial Times )
The story here was supposed to be an HSBC boom driven by its involvement in the Far East. You may well recall its regular hints of its head office leaving the UK when it wants to put pressure on the UK government. Of course being a major bank in Hong Kong is not quite what it was so let me hand you over to the South China Morning Post.
HSBC, one of three lenders authorised to issue currency in Hong Kong, said on Monday that its third-quarter profit fell 24 per cent as it reported weaker results in its retail banking and global markets businesses.
The bank said its business in the city remained “resilient” despite a weakened business climate in its largest market, as months of protests and civil unrest have sent the city’s economy into a “technical recession”.
“Resilient” eh? I did not realise that things were quite that bad! The share price is down over 4% today at £5.90 and whilst HSBC has done better than other banks until now the future does not look quite as bright.
Barclays and RBS
The British lender posted £292 million in net loss attributable to shareholders for the three-month period ending Sept 30. Data from Reuters’ Eikon predicted a loss of a £19.2 million for the quarter. Barclays had posted a £1 billion net profit in the same period last year.
The shares have risen due to rising Brexit hopes recently but £1.70 is still very poor.
RBS reports an operating loss of £8m for the nine months to the end of September 2019, falling from £961m in the same period last year.
A challenging quarter in the NatWest Markets division, where total income plunged by £419m to £150m in the wake of flattening yield curves, also dragged down the bank.
This leads to this response.
The mis-selling and other charges overshadowed underlying progress at the bank
Oh no sorry. That was from November 2nd 2012 on here!
I hardly know where to start with this one, so let me point out that the £8 share price of this summer has been replaced by one of £2
The fundamental issue here is that we are now more than a decade away from the credit crunch. The major flaw in bailing out the banks was that they then had no incentive to change. Even worse that we would repeat the mistakes of Japan and end up with a zombified banking structure. If we look at the world of IT we see the Bank of England confirming it here.
The TFS was designed to reinforce pass-through of a cut in Bank Rate from 0.5% to 0.25% and in doing so
reduce the effective lower bound in the UK…….The existence of the TFS meant that the MPC reduced its estimate of the effective lower bound from 0.5% to
close to, but a little above, 0%. ( Governor Carney June 18th )
So in spite of a sweetener of £116.7 billion the banks still cannot cope with 0% interest-rates. Ironically they may be doing us a favour of course.
Next comes the way that PPI has been a type of Helicopter Money QE for the UK economy and here we get on a rather dark road. That a quid pro quo for the banking scandals and bonuses as well as the put option for bank survival is that they put some of the money in the hands of the UK consumer.