RBS has made some serious mistakes. The UK Financial Conduct Authority (FCA) today fined Royal Bank of Scotland £5.6m for failing to properly report a massive 37% of all the trades it worked on between November 2007 and February 2012. RBS has said it regrets its "failings" and has already paid the fine. It also says it's made "significant investments" in its systems and controls.
Honourable as this seems, it is not good enough. RBS was struggling to integrate 38 different transaction reporting systems after its acquisition of ABN AMRO in 2007, but as the FCA points out it also had, "considerable resources available to it," and, "should have been able to overcome these challenges and ensure adequate systems and controls were in place."
A look back through RBS's annual reports reveals just how significant the resources available to RBS were. In 2008, the bank spent £1bn on integration and restructuring costs. It spent another £1bn in 2009 (when it announced that it was ahead of all its integration targets) and another £1bn in 2010. And yet it allowed more than 1 in every three trades to go misreported due to integration failures.
Consultants and IT staff seem most at fault. The years from 2009-2011 were a golden time for change management contractors in banking, with many earning up to £800 a day. RBS was one of the big hirers. RBS was also a big user of management consultants. Stephen Hester brought in McKinsey & Co. to prepare a report on the bank's future in 2009 (although it's not clear whether McKinsey drilled down into systems integration issues). By 2011 it was clear that consultancy spending was too high and RBS tried to rein in its bill for consultancy services, by requiring that use of consultants needed prior approval by senior managers.
By that time, however, more than £3bn had been spent on integration and mistakes on transactions were still occurring. Either people weren't doing their jobs while collecting handsome daily packages, or they weren't up to the task.
How consultants and back office staff could be rendered redundant
As all banks struggle to cope with legacy IT systems, the danger is that they'll simply give up and go for an easier option instead.
Last week, it emerged that SocGen has become the first bank to sign up to a new post-trade processing system being offered by Accenture and Broadridge, a financial solutions company. As part of the deal, 250 SocGen staff worldwide and 125 in Paris have moved voluntarily to work for Accenture. In Paris, we understand that they will be working in the same offices and ostensibly doing the same roles - just for Accenture instead of SocGen.
It's early days, but Accenture and Broadridge think they're onto something as does SocGen itself. Christophe Leblanc, COO of SocGen's corporate and investment bank, said that "mutualizing processing activities and costs across multiple institutions" [several banks outsourcing to a single provider] is the "future model for securities processing among investment banks." Broadridge says revenues in its transaction technologies, compliance technologies and outsourcing business are increasing by 10% a year.
In future, inept change managers, IT contractors, and back office staff could have the hassle of operating across legacy systems taken out of their hands.