Raphaels Bank fined £1.9 million over outsourcing failures

Raphaels, one of the UK’s oldest independent banks, has been fined over failures in its outsourcing controls which left thousands of customers unable to make payments on Christmas Eve.

In a joint statement the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) said they had issued combined fines of just under £1.89 million.

The bank’s payments division, which operates prepaid cards and charge cards in the UK and Europe, relies on outsourced service providers to perform critical functions.

The regulators said Raphaels failed to have adequate processes for assessing the business continuity arrangements of its outsourced providers.

This led to a complete failure of the authorisation and processing services at one of the bank’s card processors lasting over eight hours on Christmas eve in 2015.

The incident left 3,367 customers unable to use their cards and affected 5,356 attempted transactions.

Seasonal workers, who depended on their cards to receive wages, were among those impacted.

Mark Steward, FCA executive director of enforcement and market oversight said: “Raphaels’ systems and controls supporting the oversight and governance of its outsourcing arrangements were inadequate and exposed customers to unnecessary and avoidable harm and inconvenience. There is no lower standard for outsourced systems and controls and firms are accountable for failures by outsourcing providers.”

Sam Woods, deputy governor for prudential regulation and chief executive of the PRA, said the problem was a “repeat failing”, which demonstrated a lack of adequate response to the issue.

Raphaels co-operated with the authorities, leading to a reduction in the overall fine which would have otherwise come to £2.7 million.

Mike Redican, CEO of Raphaels, said: “Raphaels worked hard at the time to remediate the outage. We have since significantly improved outsourcing controls within the bank.

“Following a thorough review of all our business operations, the bank’s board of directors decided to withdraw from the activities on which the investigation focused in order to de-risk the ongoing business and this process is almost completed.

“I can assure all our stakeholders that the bank manages its operations effectively and meets its regulatory and capital requirements”.