21 October 2014

Stanley Epstein

Stanley Epstein - Citadel Advantage Ltd

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Operational Risk Management

To share information, ideas and experience relating to all aspects of op-risk management and compliance with Basel II
A post relating to this item from Finextra:

Failed payments costing Europe's banks EUR21bn a year - Misys

03 September 2008  |  6834 views  |  0
Despite the introduction of the single euro payments area this year, failed cross border transactions are costing European banks EUR21 billion a year, according to Misys.

Is this a disaster in the making?

04 September 2008  |  3492 views  |  1

If the Misys data are correct we are sitting atop a volcano that is just about to blow! Firstly forty one percent of failed cross-border transactions is appalling! This means that almost every second cross-border transaction is not passing muster. This also raises two very clear and critical issues - transparency and operational risk.

On the transparency side my question is; "Is this failure rate deliberate on the part of the banks?" I assume that the EUR36 a time "cost" is not a real cost but what banks are charging for making the repair. I have enough experience in activity based costing in bank transaction processing to know that this number is certainly well padded. So, being the cynic that I am, it would make sense for a lot of banks to grow their revenues from these failures, however insignificant some of the faults might be. Also, once a payment has failed, how keen are banks on educating their customers to see that the failure does not recur?  

On the operational risk side the comment that these cross-border payment failures are "... caused by a number of factors including weak payment initiation controls, poor process monitoring and problems during clearing and settlement" has sent me to "Red-Alert". If this is true, and if this affects almost half of all European cross-border payments then we are sitting on an operational risk disaster of huge magnitude just waiting to happen.

Please someone .... tell me that I am dreaming.

TagsPaymentsRisk & regulation

Comments: (1)

A Finextra member | 04 September, 2008, 18:42

According to the survey this is based on, the average cost to banks across Europe is likely to be in the region of 6 euros, ranging from under 5 euros in Germany, Austria, Sweden and Greece and up to 10 euros in France, UK, Italy and Spain.

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Stanley Epstein

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