The disruptive and embarrassing IT outages that have blighted British banks and affected millions of customers are set to continue, as firms continue to grapple with new technologies, said Megan Butler, the U.K. Financial Conduct Authority's head of supervision.
"On the basis of the data that the FCA is currently collecting, we see no immediate end in sight to the escalation in tech and cyber incidents that are affecting U.K. financial services," Butler said during a speech in London. The regulator's data shows a 138% increase in reported technology-related breakdowns in the first 10 months of 2018.
At the same time, criminal-hacking incident reports increased 18% over the same period, which excludes the £16.4 million fine that was issued to Tesco Bank in October 2018 for a cyberattack on its systems in 2016.
Furthermore, Butler warned that some companies are likely not informing the regulator about all incidents, meaning the tally might be higher. "We strongly suspect that under-reporting is still a problem," she said.
A series of outages and issues have hit U.K. banks this year. The months-long outage at midsize bank TSB Banking Group PLC, beginning in April, led to the CEO's resignation and a public inquiry into the lender's IT practices. HSBC Holdings PLC, Barclays PLC, Royal Bank of Scotland Group PLC and Visa Inc. also suffered less serious outages throughout the year. The Treasury Committee of the U.K. Parliament announced Nov. 21 that it had launched an inquiry into IT failures in the U.K.'s financial services sector.
Butler reminded companies of their duty to the public, threatening more severe enforcement action against firms that "fail to get the basics right." For example, she said, only half of supervised organizations are upgrading their computer systems in time, leaving many vulnerable to hacking and network failure. The FCA has previously said that cyberrisk, including system-related failure, is the biggest threat to banks since the financial crisis.
"If your bank stops working, your life and business can be severely constrained, a point that is especially true in the U.K. today with the decline in use of physical currency," she said.
The FCA is pushing for IT-savvy executives to be installed on the boards of all financial firms, and for them to design detailed plans for emergency situations, including system backups to keep services operating, appropriate and timely communication to clients who have been affected and close supervision of their IT contractors, many of whom are unregulated, according to Butler.
Even when the contractor fails, the regulated firm and its management will be held to account by the FCA, including under the as yet untested Senior Managers Regime, she said.