Bank of England says confidence in banking system shaky after cyber threats and scandals
UK banks must go far beyond bolstering financial strength to restore confidence after recent scandals and should guard against complacency about possible cyber-attacks, the Bank of England warned today.
Threadneedle Street published the results of stress tests last week which showed seven out of eight of the UK’s biggest lenders — with the exception of the Co-operative Bank — riding out extreme scenarios. But the minutes of December’s Financial Policy Committee meeting said confidence was still shaky after a slew of scandals including foreign exchange rigging, for which six banks got £2.6 billion in fines last month.
The banks are also being dogged by operational issues, underlined last month by Royal Bank of Scotland’s £56 million fine from regulators for a botched software upgrade in 2012 which prevented millions of customers from accessing accounts.
According to the minutes, the FPC "noted that recent misconduct and other operational failings had highlighted that rebuilding confidence in the banking system would require more than financial resilience".
Policymakers stressed that "strong, effective and well-informed management and governance arrangements would be essential to rebuild confidence in the banking system".
Bank boards are also not taking the cyber threats seriously enough, the FPC added. The committee noted "a tendency among firms to view cyber threats as a technical problem, rather than an issue which merits board-level attention given the evolving nature of cyber threats and the key importance of cyber resilience to continuity of financial services".
Several banks including JPMorgan have been targeted by high-profile attacks this year. The Bank has launched a new framework, known as CBEST, under which government intelligence is used by private security firms to identify the vulnerabilities of individual institutions, and replicate the methods of potential attackers.
Other risks identified by the FPC included the sharp fall in the oil price, potentially reinforcing geopolitical risks and undermining the ability of highly geared US shale oil and gas firms to service debts.
Crude is down more than 40 per cent this year but jumped above $62 today in the wake of comments from Saudi Arabia’s oil minister, Ali al-Naimi, that lower crude prices would help demand by spurring global growth as shale projects become less economical.
The oil slide will send inflation tumbling below 1 per cent but Bank rate-setter Martin Weale - currently voting for a rate rise - played down the plunge today. "It’s a separate issue to where inflation is going to be in, say, two years’ time," he said.
Belfast Telegraph Digital