The Financial Services Authority (FSA) has fined Bank of Scotland $5.5 million for failures in their systems which meant it held inaccurate mortgage records for 250,000 of its customers.
This was the result of mortgage information being held on two separate unaligned systems, and problems with two further processes where manual updates were not always carried out.
The effect was that Bank of Scotland relied on incorrect records for considerable periods of time between 2004 and 2011.
The issue first came to light when Bank of Scotland put in place a program to rectify the fact that some Halifax customers had received potentially confusing information about changes to their mortgage contracts, specifically relating to the standard variable rate.
While monitoring a consumer forum website, the FSA found a number of customers complaining that they had been wrongly excluded from the program and had not received goodwill payments.
As well as excluding this group, the problem was compounded when Bank of Scotland incorrectly contacted 33,700 customers who should never have been included in the program and mistakenly made goodwill payments totaling $26.6 million to 22,700 of them.
“These mistakes stemmed from the fact that Bank of Scotland had an inadequate mortgage records system meaning they could not identify which of those 250,000 customers were subject to a cap on their standard variable rate,” said FSA enforcement chief Tracey McDermott. “This breach is particularly serious because the inaccuracies built up over a period of seven years.
“There was no structure in place to identify errors as they occurred and no checking procedures thereafter.”
“In a complicated organization where several legacy systems exist, firms have to make sure they are synchronized, otherwise it is their customers who suffer.”
The FSA said Bank of Scotland was breached Principle Three of the FSA’s Principles for Business, which requires a firm to organize and control its affairs responsibly and effectively, with adequate risk management systems.
Bank of Scotland agreed to settle with the FSA at an early stage of the investigation. Without this early settlement and the firm’s co-operation, the fine would have been $7.8 million.