Posted: 20th November 2014

Alas, we can all see how rapidly the technological age continues to advance.  

As we pour our lives into our Google Glasses and see our days filter through our iPhone 6s, it is clear that whilst such technology serves to make our lives easier, with it brings new challenges. The management of your own personal IT infrastructure, for example; are your Google Glasses locked away in their cases? Are all your photos and files backed up in case of a dreaded waterlogging?

In the instance of financial services firms, the topic, consumption, and advancement of financial technology has rightfully been stepping out from the shadows and into the mainstream as dependence on digital connectivity increases. This burgeoning adoption of the tech world means rapid, efficient, simple, and less costly interactions, with consumers being able to source products, advice and information with growing ease. Not only does this make the markets more efficient, it also allows for new, more innovative entrants into the market, benefiting competition. Whilst this all comes across as very exciting and pioneering, how must you as a provider identify and sustain fairness, compliance and efficiency in the tech age?

The regulator’s perspective

The FCA places substantial importance on firms’ IT helping to deliver fair customer outcomes. IT infrastructure is also one of the priority areas of focus this year in the FCA’s Retail Banking Division, whilst IT is also one of the seven forward-looking areas of focus highlighted in the FCA’s 2014 Risk Outlook, with the regulator stating:

“Financial firms and consumers are becoming increasingly reliant on technological systems and are more exposed to their disruptive capabilities (in the form of abuse, misunderstanding or operational challenges arising from the increased complexity of, and reliance on, these systems).”

The FCA also issued a paper in July highlighting areas firms should consider when outsourcing IT arrangements, emphasising that above all: “a regulated firm should be clear that it retains full accountability for discharging all of its regulatory responsibilities. It cannot delegate any part of its responsibility to a third party.”

Trouble in ‘fintech’ land

Any form of inefficiency in your firm’s IT infrastructure can have adverse effects for both your business and your customers. To provide a few high profile examples, there have been a number of unfortunate incidents in the industry, whereby financial institutions have found themselves at the mercy of technological calamities:

  • In June 2012, an IT incident at the RBS Group meant that millions of RBS, NatWest and Ulster Bank customers could not get cash from ATMs
  • Additionally, automated and card transactions did not complete despite customers having funds in their accounts
  • RBS provisioned over £100m to compensate its customers for this incident and were this month fined £56 million by the FCA
  • An IT incident at Lloyds earlier this year led to their customers not being able to make card payments or withdraw cash for a few hours. Again, millions of customers were affected
  • Other banks, including the Co-op, have also suffered IT failures which have caused detriment to their customers

Key questions to ask

It is imperative for your firm to assess, understand and take action on the conduct risks that can crystallise through having an inadequate IT infrastructure. Consider the following questions to help you cover as many angles as possible:

  • When did you last assess the IT infrastructure at your firm?
  • How do you satisfy yourself that the IT infrastructure at your firm is robust?
  • What emergency plans are in place if there is an IT incident at your firm?
  • Where your firm has outsourced its IT arrangements to a third party, how do you satisfy yourself that the third party has sufficient skills, knowledge and expertise?
  • How do you assess the performance of the third party, and how frequently do you do this?

As technology in the world of finance (and the world in general) develops into what might one day look like something from a sci-fi film, robust IT infrastructures, along with regular reviews, clearly helps your firm commercially and demonstrates that you have the customers at the heart of your business.


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