TSB fine for misconduct shows flaws in bank penalty systems, says expert

Bayes bank regulatory expert reacts to the latest punishment dished out for bank misconduct.

UK banking giant TSB has today received a fine of nearly £49 million for a serious breach in its IT system which left customers unable to access services for several days in 2018.

The incident is the latest in a line of bank misdemeanours that have threatened the reputation of the sector and trust of customers.

Roger McCormick, Honorary Senior Visiting Fellow at Bayes Business School explained that delays between the time of incidents and respective punishments were problematic.

“One of the striking things about regulatory fines on banks is that they tend to be imposed so long after the event,” Mr McCormick said.

“This fine relates to an IT problem from 2018, and only at the end of 2022 do the regulatory financial consequences come home to roost. Another example of this is the recent $2 billion fine on Danske Bank for money laundering transgressions during the period between 2007 and 2015.

“Justice must take its course and its wheels tend to grind slowly, but there are two unfortunate side-effects. Firstly, the seriousness of the trigger event for the fine will tend to have diminished in public conscience with the passage of time and, of course, the bank’s management will utter the usual, and not very convincing, assurances about having learned lessons.

“This may distract from the enormity of the misconduct itself, and it is important that poor conduct has a reputational impact. Delays of several years in requiring the price to be paid tend to soften that impact.

“The second is that any attempt to use conduct cost data as a measure of bank responsibility – as we do at Bayes with the Conduct Costs Project – is always dogged by the problem that data reflect behaviour from several years ago rather than the present day.

“This makes it important to collect and assess the data on a long term basis and analyse long term trends, not just snapshots of a particular year, bank or conduct phenomenon.”

The Centre for Banking Research at Bayes leads the Conduct Costs project, which monitors episodes of misconduct in 20 of the world’s largest banks.

All quotes can be attributed to Roger McCormick, Honorary Senior Visiting Fellow at Bayes Business School (formerly Cass).