Raphaels Bank, one of the UK’s oldest lenders, has received its second major regulatory fine in less than five years for poor outsourcing controls.
The Bank of England’s Prudential Regulation Authority and the Financial Conduct Authority fined Raphaels a combined £1.9m after a joint investigation found a series of problems between 2014 and 2016 that culminated in a technology failure that left thousands of customers unable to receive wages or make payments.
Raphaels offered prepaid cards that relied on third-party outsourcers for several key functions. The FCA said Raphaels did not have sufficient processes to assess the outsourcers’ recovery plans in the event of a disruption, a failure illustrated on December 24 2015 when an incident at a card processor led to a “complete failure” of processing and authorisation services for more than eight hours.
The FCA said the failure reflected “deeper flaws in [the bank’s] overall management and oversight of outsourcing risk from board level down”.
The PRA has only issued a handful of fines since its creation in 2013, but Thursday’s announcement was the second time it has censured Raphaels. In 2015, it fined the 232-year-old bank £1.3m for failures related to outsourcing in its cash machine business.
Raphaels would have received an even larger fine of £2.7m, but was given a 30 per cent reduction after it co-operated with the regulators.
Mike Redican, Raphaels chief executive, said: “Raphaels worked hard at the time to remediate the outage. We have since significantly improved outsourcing controls within the bank. Following a thorough review of all our business operations, the bank’s board of directors decided to withdraw from the activities on which the investigation focused in order to de-risk the ongoing business and this process is almost completed.”
Regulators have been particularly concerned about “operational resilience” after a series of high-profile failures over the past year, such as major outages at TSB and Visa. The PRA and FCA are expected to publish a joint consultation paper on the topic later this year.
