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Comment: Open banking’s cyber challenge

In the wake of the TSB debacle, emphasis must be on customer security.

Open banking has placed a renewed emphasis on the need for institutions to engage with technology, and a sequence of unfortunate and widely publicised missteps within the sector over the past few months have served to underline this.

In April, for example, TSB’s attempt to migrate its IT system resulted in just under two million customers being locked out of online and mobile banking services for up to a week (or even longer in some cases).

Access to mortgage accounts and credit card statements was disabled, direct debits and standing orders were cancelled, penalty fees were incurred and more than 1,000 people suffered financial loss as a result of fraud.

Chief executive Paul Pester was forced to resign in September amid a haemorrhaging of customers (up to 2,000 per week, according to some reports) and an estimated bill of £175m to fix the problems, including compensation claims.

A subsequent investigation by IBM suggested that the bank’s testing of its new IT system had failed to show “evidence of the application of a rigorous set of go-live criteria” and that it “did not provide the required evidence of capacity”.

With regulators becoming increasingly protective towards financial customer bases, the possibility of larger compensation claims and lawsuits in the future should be of considerable concern to the banking industry.

This means the focus on technology should be driven as much by the need for customer security as innovation. Indeed, according to the 2018 Allianz Risk Barometer, cyber incidents, such as infiltration of infrastructure by hackers and general IT failures, represent the highest risk to UK corporate businesses today.

While most within the banking industry will be keenly aware of the dangers posed by the former scenario, there is a good chance many will have underestimated or failed to calculate the impact of the second. The TSB debacle should change all that.

Phil Whitehouse is managing director of MCI Mortgage Club

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