The FSA has just introduced new rules which will cost UK banks £1 billion to implement in IT system upgrades.
The actual announcement from the FSA
states that bank customers should be compensated within seven days if a bank fails. This should be for the gross amount, up to £50,000, ignoring any debts the depositor may have with the bank, such as loans or mortgages. Furthermore, the bank will be required to produce a list of all customers’ deposits within 48 hours of failing.
The directive ensures that consumers and small businesses that have deposits with the bank can have confidence in getting their money back fast. However, for the bank, it will require stringent rules on how they manage customer information.
For example, the bank is being to hold full knowledge of all of their trading with those depositors through all of their entities in an immediately accessible manner, as the consultation paper dictates that the bank must have ‘up-to-date’ knowledge of every customer across all subsidiaries for the fast processing of claims.
This is a huge challenge for a bank.
Taking Lloyds TSB as an example, it will mean that the bank will need
to know the full customer dealings for every single one of their 30
million customers, after the HBOS merger.
That implies a single data store for customer information across Lloyds
TSB, Scottish Widows, Cheltenham & Gloucester, Birmingham
Midshires, Bank of Scotland and Halifax.
Furthermore, Lloyds TSB Group must regularly inform customers of their dealings across the Group, as some depositors may not know that they are dealing with one institution, but may think it is several. This is because depositors may only claim once for up to £50,000 across the whole Group.
Similary, Santander may be impacted. Santander now own Abbey, Bradford & Bingley and Alliance & Leicester, and have already suffered one major upgrade to the Abbey systems. Now, they not only have to contemplate another major core systems programme, but also a systems overhaul on top!
No wonder banks will resist this ruling and why the FSA state that: “the set up and maintenance costs of new IT systems for quick claims processing are estimated at £891.8m over five years. Firms' obligations to tell customers about the FSCS (Financial Services Compensation Scheme)scheme, along with telling customers which trade names are covered by a particular authorisation, would have estimated set up costs of £34.6m and ongoing annual maintenance costs of £4.2m.”
This came from a report by Ernst & Young, and the full details are worth reading for any UK or non-UK bank, as these directions may well be reflected by other authorities in other regions.