Data Fail Sees Bank Of Scotland Hit With £4.2m Fine

Poor bookkeeping and continued use of legacy IT systems has cost the Bank of Scotland (BOS) dearly, as it was today hit with a £4.2 million fine imposed by the Financial Services Authority (FSA).

The bank was storing inaccurate mortgage records for 250,000 customers on two different, unaligned systems, said FSA. Thanks to poor maintenance andmissed updates, it kept incorrect records for significant periods of time between 2004 and 2011, which resulted in 160,000 homeowners incorrectly excluded from a compensation programme they should have been part of.

Problems started when BOS wrote to some Halifax customers, after the two became part of HBOS, to tell them it was going to raise the standard variable rate cap on their mortgages. BOS then admitted it hadn’t been as clear as it should have been about the raising of the cap, so it set up a programme to hand goodwill payments to customers who had been misled.

Bank of Scotland pays for complexity

But then the flawed software caused even more problems. The sub-standard record keeping meant 160,000 customers who were due to receive the payment were not paid on schedule.

BOS also contacted 33,700 customers who shouldn’t have been compensated, and mistakenly made goodwill payments  to 22,700 people, totalling £20.4 million.

The bank wrote to affected customers in November 2011, and all due payments have now been processed.

“Bank of Scotland has apologised to customers, co-operated fully with the regulator throughout this process and has agreed to pay a fine of £4.2 million,” said a BOS spokesperson.

Tracey McDermott, FSA director of enforcement and financial crime, criticised the bank for failing to keep its IT infrastructure up to date.

“These mistakes stemmed from the fact that Bank of Scotland had an inadequate mortgage records system meaning they could not identify which of those 250,000 customers were subject to a cap on their standard variable rate,” said McDermott.

“This breach is particularly serious because the inaccuracies built up over a period of seven years. There was no structure in place to identify errors as they occurred and no checking procedures thereafter.

“In a complicated organisation where several legacy systems exist, firms have to make sure they are synchronised, otherwise it is their customers who suffer.”

This year saw several significant IT failures in the financial sector. Earlier, RBS and NatWest customers were unable to make transfers or tell if their accounts had the correct funds, thanks to a botched payments software upgrade.

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