Monday, June 5, 2023

Sabadell agrees to a 55 million fine from the British regulator for problems in the technical migration of its subsidiary TSB

As announced this Tuesday in a statement to the National Securities Market Commission (CNMV), Banco Sabadell closed the episode of problems in the migration of the technical platform of its British subsidiary TSB. TSB has agreed to close an investigation with the UK Financial Conduct Authority (FCA) and the country’s Prudential Regulation Authority and pay a fine of £48.65 million (£55.6 million euros). This will be recorded by the credit subsidiary in the fourth quarter of the year and will have a capital impact at the group level of 6 basis points.

The entity, as stated in the note, believes that the penalty amount will be offset against existing insurance policies. “Banco Sabadell estimates that the insurance policies taken out by TSB and Banco Sabadell will make it possible to offset the above amount and the impact on capital in the following quarters,” the statement said. UK markets regulator the FCA also recalled this Tuesday that the bank did not “adequately plan” the operation and follow up or manage risk adequately. The fine is split into two parts: £29.75 million to the FCA and £18.9 million to the Prudential Regulation Authority.

As such, Sabadell ended the problems the British subsidiary faced with the technical migration in April 2018, when it had to split from Lloyds, TSB’s former parent company. The event had such a profound impact on the subsidiary’s income statement that it raised the prospect of a sale by Sabadell. However the current situation is far from that: as of September, it contributed to the group’s profit with 93 million euros (the same period in 2021 also had a profit, although somewhat less: 82 million).

“A significant portion of all TSB offices and its 5.2 million customers were affected by these problems. Some customers continued to be affected and it took until December 2018 to return to normal”, recalls the FCA, which recognizes how much technology migration has was ambitious and complex. Despite this, the British regulator criticizes the lack of organization and risk management. Thus, thousands of customers faced blocking of their accounts wherein they could not operate or access through any medium (through physical branches, telephone or internet banking). In that exercise, Sabadell recorded a 384 million loss between extraordinary expenses and compensation to customers.

“The decisions in this case were wide-ranging and serious, having a real impact on the daily lives of a significant proportion of TSB’s customers, including those who were vulnerable. The company did not adequately plan for the migration, the project’s governance was not robust enough and the company did not exercise due diligence to organize and control its events responsibly and effectively with adequate risk management systems”, the FCA details.

This episode is now a part of the past and the bank’s new management team, led by Cesar Gonzalez-Bueno, has restarted the business of its British subsidiary. In fact, there is no trace of this bad drink in the technical section. According to Sabadell, more than 90% of TSB customer transactions are done through digital or automated channels.

The approval from the British regulator is in addition to one granted by the Santander subsidiary in the United Kingdom two weeks ago and by the FCA, in this case due to deficiencies in anti-money laundering controls in the self-employed banking division, in the period that ended on December 31, 2016. Runs from 2012 to October 18, 2017. For Santander, the agreement also included a fine of 107.79 million pounds (124.92 million euros).

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