RBS IT failure cost rises to £175m

Royal Bank of Scotland has revealed that the costs relating to its substantial IT failure over the summer have risen to £175 million, an additional £50 million on last quarter.

However, its third quarter results have also highlighted that despite the disruption, which went on for more than a month in some cases, customers have decided to stick with the bank.

A statement to investors said: “Customer deposits remained flat on a constant currency basis, with no significant outflows following the Group technology incident, while retail and SME balances increased marginally in the quarter.”

The £175 million costs relate to waiver of interest, charges and compensation payments for customers.

To date RBS’ subsidiary Ulster Bank has had to pay out the most with costs reaching £82 million; UK retail’s costs reached £41 million; £25 million through group centre; £24 million through UK corporate; and £3 million through international banking.

RBS revealed to Computerworld UK last quarter that law firm Clifford Chance is providing ‘external counsel’ on what went wrong and will carry out an independent review.
The bank has warned that it faces potential legal challenges going forward.

It said: “The incident, the group’s handling of the incident and the systems and controls surrounding the processes affected, are the subject of regulatory enquiries (both from the UK and Ireland) and the group can become a party to litigation.”

“In particular, the group could face legal claims from those whose accounts were affected and could itself have claims against third parties.”

In July, millions of RBS customers couldn’t gain access to funds in their bank accounts after a botched upgrade that was made to batch processing software CA 7 from CA Technologies, which impacted some accounts for more than a month.

It was revealed that it was RBS’ Edinburgh-based IT staff that were responsible for the systems failure, which contradicted earlier media reports that claimed a junior IT worker based in India had made the error.

It has since been said that city regulator the Financial Services Authority (FSA) is preparing to tell UK banks to upgrade their outdated IT systems, but is waiting to hear the full details of what went wrong.

RBS’ chief executive Stephen Hester has said that the banking group may have avoided the major IT glitch if it had focused more on keeping its existing systems up-to-date, rather than developing new systems.

“RBS has seen a big mushrooming in spending on technology. With hindsight maybe a bit more of that increase in spend should have been in the core, taken-for-granted systems that work every day,” said Hester.

“Some of our focus was on the new things people want.”