An investigation by the U.K.'s Financial Conduct Authority into TSB Banking Group PLC's severe IT problems will involve an examination of liability by top executives at the lender through the framework of the Senior Managers Regime, FCA head Andrew Bailey told British legislators June 6.
Parliament's Treasury Select Committee heard evidence from regulators and TSB's bankers about the IT failure that started at the end of April and affected tens of thousands of account holders, costing the bank more than £70 million to date. Some of the technical issues remain unresolved.
"What we have got here ... is a relationship with an outsourced provider which happens to be part of the parent's organization," Bailey told the committee, referring to an IT company that built the failed system and which, like TSB, is owned by Spanish bank Banco de Sabadell SA. "That is important because obviously it introduces governance relationships and service relationships," Bailey said.
"You can outsource work, we do it at the FCA, but you cannot outsource responsibility — that is absolutely core to this. Now, the [Senior Managers Regime, or SMR,] to my mind very helpfully crystallizes that directly because it's the concept of responsibility and accountability that comes through ... and that responsibility does rest with the management of TSB," he said. "The investigation will of course have to center around the application of the SMR."
Bailey said he would avoid any "prejudgments about what the conclusions are and what the punishments are" before the investigation is completed.
The SMR took effect in March 2016, and it seeks to hold top management personally accountable for company failings. Penalties can range from fines to industry bans and even prison sentences for the gravest offenses.
The FCA announced its investigation into TSB in a letter to the treasury committee published June 6.
Apart from the relationship with the failed IT provider, the FCA will also probe the communication of the bank to the public, with Bailey suggesting that managers have been less than straightforward when expressing optimism about the progress they were making in fixing the IT crisis. These communication failures may have affected public trust in TSB and the U.K. banking system, Bailey said.
At the same time TSB has hired London law firm Slaughter and May to conduct an internal investigation into the matter, executives later told the committee.
