Barclays compliance system failures ‘the tip of industry iceberg’

Serious reporting system failures at Barclays Capital are only the tip of the iceberg in an industry riddled with IT compliance problems, according to analysts.

Barclays own outdated systems failed to collect the right data from trades to send on to the regulator, even though its other systems that trade for customers were up-to-date and efficient, it has emerged. This meant it did not comply with strict reporting requirements set by Markets in Financial Instruments Directive (Mifid), which is enforced by the FSA.

Chris Skinner, chief executive at financial think-tank Balatro, told Computerworld UK that while Barclays was the only bank to have been caught for system failures relating to Mifid, there is “loads of this going on”. The Barclays failures were uncovered by chance when the FSA was investigating suspected market abuse by a third party.

“Mifid has been law since November 2007, but no-one had been taken to task over the rules before now,” he said. “The £2.45 million fine for Barclays wouldn’t worry most large banks anyway; it’s like a banker’s bonus for a week.”

More serious punishment for failing to comply with rules was needed, he said. “People don’t stop drink-driving because you ask them not to. It’s the same with this - until individuals in charge at banks receive heavy fines or the real threat of going to prison, they’ll just carry on.”

Ralph Silva, senior analyst at financial technology consultancy Tower Group, agreed that the fines the FSA may impose are not serious enough for compliance system failures.

“I’d love to say things will change in the industry as a result of this fine on Barclays. But they probably won’t,” he said.” The amount of money needed to improve the systems well outweighs the level of fines you’re likely to get.”

“Imagine what such an investment would mean for the middle tier banks that are smaller than the likes of Barclays, Goldman Sachs and Merrill Lynch,” said Skinner.

“Most banks spend their system money on being competitive, not on regulatory compliance,” he added. “Those systems lag behind by years. I know of a bank that still has an internal system still ready for pounds, shillings and pence.”

Silva added: “Sometimes the middleware in place or the methods of batch processing – which can be hourly or as little as once a night – mean there are big changes between the original data and what is archived for reporting purposes.”

Banks have “got to spend money” updating those systems, he said. “But many are happy to take a few fines, as long as the customer is not affected and they’re keeping pace with the speed of trading required.”

Copyright © 2009 IDG Communications, Inc.

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