EDINBURGH-BASED TSB has been fined £48.65m over a notorious botched IT migration that left around two million customers locked out of their accounts for weeks in 2018.

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have fined TSB Bank £48,650,000 for “operational risk management and governance failures”, including management of outsourcing risks, relating to the bank’s IT upgrade programme.

The IT collapse caused one of the biggest financial outages since the inception of internet banking and led to over £33 million being paid out to customers as well as the departure of the high street bank’s then chief executive, Paul Pester.

Mr Pester admitted at the height of the crisis that the lender was "on its knees".

The finance regulators say that TSB “failed to organise and control the IT migration programme adequately”, or to properly manage the operational risks from outsourcing work to a critical third-party supplier.

The watchdogs said TSB’s entire branch network and a significant portion of its customer base were affected by the problems and it took the bank until December 2018 to fully return to business as usual.

They said the incident shows the critical importance that firms invest in resilience to avoid the widespread harm that operational disruption can cause.

Last year, TSB announced plans to axe 70 bank branches this year, putting 150 jobs at risk.

It said the latest closures are in response to declining branch use and more customers using digital services.

It comes a year after it announced it was shutting 73 bank branches and a cut of around 300 jobs despite appeals to save branches in remote and most deprived areas of Scotland.

The Herald: TSB chief executive Paul Pester.

Paul Pester

A report commissioned by the bank and carried out by law firm Slaughter and May found that the board of TSB lacked “common sense” and shifted customers to a new IT platform before it had been fully tested.

The report into the 2018 meltdown found TSB repeatedly missed opportunities that could have helped the UK bank avoid the issues that affected millions of customers and cost it more than £350m.

It found the board failed to ask its contractor key questions ahead of the launch, which resulted in nearly 1.9 million customers being locked out of their accounts.

Mr Pester, who had criticised the report’s “scattergun” approach, said its findings showed TSB’s Spanish parent company Sabadell had “cut corners” with critical IT testing.

But the 257-page, £25m report also identified a litany of failings inside TSB and accused it of being dishonest about its problems in the run-up to the ill-fated upgrade.

The migration plans were meant to finally separate TSB from the IT systems owned by its former parent Lloyds Banking Group. But the report claimed its leadership failed to learn any lessons from the programme’s initial stumbles.

The regulators said while issuing the fine: "TSB's IT migration programme was an ambitious and complex IT change management programme carrying a high level of operational risk.

"Its success was critical to TSB's ability to provide continuity of critical functions and safety and soundness.

"However, the regulators' found that TSB failed to organise and control the IT migration programme adequately, and it failed to manage the operational risks arising from its IT outsourcing arrangements with its critical third-party supplier."

TSB said in 2020 that new changes will allow the bank to “strengthen IT resilience and leverage higher value technology, including AI, to deliver new innovative cloud-native services to its customers.

Mark Steward, the FCA’s executive director of enforcement and market oversight, said: “The failings in this case were widespread and serious which had a real impact on ... day-to-day lives.

The Herald: TSB has announced its Magdalen Street branch will be closing next year

“The firm failed to plan for the IT migration properly, the governance of the project was insufficiently robust and the firm failed to take reasonable care to organise and control its affairs responsibly and effectively.”

Sabadell has recently denied reports that it was considering selling TSB, amid talk that Edi Truell, a veteran City investor, was considering setting up an investment company that may launch a bid for the UK high street lender.

TSB chief executive Robin Bulloch, said: “We’d like to apologise again to TSB customers who were impacted.

“We worked hard to put things right for customers then and have since transformed our business.”

 

Jenny Ross, money editor with the consumer organisation Which said:  "TSB's computer meltdown caused huge misery and inconvenience for customers, many of whom were left locked out of their accounts altogether and unable to pay bills or run businesses. 

"It's encouraging that the regulator has taken strong action today, sending a clear message to other firms that damaging IT glitches will not be tolerated."

The issues surfaced as the bank tried to move customers to the new platform, which it failed to test properly according to a a subsequent inquiry.

The botched migration came after a change of TSB ownership -from Lloyds Banking Group to Sabadell of Spain.

TSB was sold to Sabadell for £1.7 billion in 2015 and came as the regulators moved to increase competition among high street banks in the wake of the 2008 financial crisis, which brought Lloyds and Halifax Bank of Scotland together, reshaping the market for retail accounts.

The sale restored the TSB name – Trustee Savings Bank -- to the UK high street over the 632 branches Lloyds sold.