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System failures: addressing the elephant in the room

The banking industry has a history of suffering system failures, but little has been done to prevent this type of disruption happening again. Is better business continuity the way forward in an era of risk and uncertainty, and should banks do more to plan for this?

A technical glitch that left 275,000 HSBC customers from receiving their monthly salaries ahead of the 2015 August Bank Holiday Weekend has renewed concerns both in the UK and globally regarding how well banking systems are maintained and updated.

Whilst historically system failures have affected many of Britain’s major financial institutions, banks have increasingly found themselves under the microscope over the last few years, as the UK economy has grown staunchly from the 2008 financial crisis. As a result, any anomalies triggered by a bank that affected businesses and consumers’ ability to access their dues have automatically made front page headlines.

With daily pressure, it comes as no surprise that banks are starting to consider solutions for business continuity and contingency planning, with the aim of safeguarding their reputations and retaining customers.

Have any banks acted on this – and what next?

If the 2008 financial crisis has taught financial institutions anything, it is that they need to put in place responsible contingency plans and business continuity processes in order to avert bringing themselves into disrepute.

Whilst payment system outages are not the same scale as a global financial crash, contingency channels offered to customers – whether consumers or corporates – when they are unable to make payments through their primary banking link, could help banks avoid compensation costs and investigations from regulatory bodies, along with improving credibility amongst customers.

With NatWest suffering problems only a few days after the HSBC failure and RBS’s 600,000 lost payments fiasco earlier in the year, banks need to act now to prevent further complications. They must set their sights on exceeding customer expectations while minimising losses, by delivering a robust contingency service in the eventuality that their primary banking channel may fail.

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Comments: (4)

Matt Scott
Matt Scott - Fiserv Inc - London 23 September, 2015, 09:281 like 1 like There has been a focus to ensure high availability (and disaster recovery) at a hardware level - implementing N+1 where ever practical - however what is often lacking is fault-tolerance at a software level and monitoring and actioning events when incidents arise. Whilst you cannot design for every eventuality you should cover general exceptions and give a sensible path to recovery or continuation of processing.
Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 23 September, 2015, 13:451 like 1 like

I was once involved in formulating a strategy to deliver a robust contingency service in the event of failure of an FPS system that was rated for 1200 transactions / second. At the time (2008), the contingency service cost nearly as much as the basic system, which dissonated with the business sponsor's expectation that contingency shouldn't exceed 5% of project cost. With the passage of time, I'm sure there have been major improvements in technology and / or process and am keen on knowing whether contingency costs have come down to a more realistic level now.

A Finextra member
A Finextra member 24 September, 2015, 16:49Be the first to give this comment the thumbs up 0 likes

You’re right, Matt. A bank's business continuity platform is a critical part of its risk management approach. If an incident creates an impression that the bank is at risk, it could hamper both its profitability and viability. The fault-tolerance at a software level must incorporate activities to monitor the present risks and consider appropriate actions to take preceding an incident to reduce its possibility/impact.

 

A Finextra member
A Finextra member 24 September, 2015, 16:50Be the first to give this comment the thumbs up 0 likes

@Ketharaman - Today, IT systems are at the heart of many business processes. As we move into advanced levels of automation, more use of computer supremacy than we’ve yet to even imagine, the importance of our systems becomes crucial to revenue generation and cost control. With the emergence of cloud solutions the footprint of contingency channels can be light, allowing banks and corporates to implement this in a cost effective way.

It all depends on the comprehensive nature of business continuity model that organisations deploy as part of their enterprise architecture. And there are crossovers like governance and compliance that need to be taken into account as well.

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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