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Watchdog slams TSB boss for underplaying extent of IT meltdown

Financial Conduct Authority to probe British bank's tech migration

A City watchdog has launched a stinging attack on TSB chief Paul Pester for portraying "an optimistic view" of its catastrophic IT meltdown in April that prevented 1.9 million customers from using online bank services.

Andrew Bailey, head of the UK's Financial Conduct Authority (FCA), told Parliament's Treasury Select Committee the body is investigating TSB's IT migration off ex-parent Lloyds Banking Group's (LBG) systems, along with the Prudential Regulation Authority.

"We do not normally make this information public, but given the level of public interest, I want to be clear that we will be conducting this work," Bailey wrote in a letter (PDF) published ahead of Pester's second grilling by the committee later today.

"The FCA has been dissatisfied with TSB's communications with its customers and we have had concerns that TSB was not being open and transparent about the issues experienced," it added.

"For example, TSB referred to 'the vast majority' of customers being able to access their online accounts, at a time when there was a successful first-time login rate of only 50 per cent on the web channel."

In response, chair of the committee Nicky Morgan said: "The regulator does not make such criticisms lightly. I am deeply concerned by TSB's poor communications about the scale and nature of the problems it has faced; by its response to customer fraud; and by the quality and accuracy of the oral and written evidence provided by Dr Pester to the Committee."

At the end of a week of turmoil for customers in April, TSB said it had drafted in a team of "global experts at IBM" who would help with systems integration.

However, the FCA said Pester could "have shared more detail [on the incident] with the Committee", including IBM's initial views, when he was first hauled up in front of MPs.

In May Pester told the committee that the British bank could "benefit from [IBM's] global expertise" in middleware – which he attributed to the issues.

He claimed to the committee the migration of data from LBG to TSB's new system, a challenging feat, "went smoothly and the bank balanced to the penny".

TSB planned to shift off LBG's infrastructure after it was bought by Spanish bank Sabadell for £1.7bn in 2013. At the time, Sabadell estimated the system switch would save the bank some £160m a year.

Bailey of the FCA said that TSB had also not met the requirement in the Payment Services Regulations to refund all relevant customers "as soon as practicable and in any event by the end of the business day after the day which the bank became aware of the fraud".

Following the incident, a number of customers fell victim to fraud via phishing calls, emails and texts sent by scammers purporting to be TSB and asking them to verify their bank details.

A TSB spokeswoman said: "We look forward to updating the committee on the work TSB has undertaken to resolve problems for customers since our last appearance.

"We recognise that we have more to do to restore the bank's operations to the level that customers expect and are completely focused on that and ensuring customers are not left out of pocket." ®

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