After the TSB online banking disaster caused by the migration from former parent company Lloyds Banking Group to new Spanish owner Sabadell back in April this year, MPs are calling for an investigation into why financial institutions keep failing us online.
It’s become a common theme in recent years; the more the consumer is urged to embrace digital banking, the more prevalent – and devastating – the mistakes made by these large companies are. Sky News has described the technical difficulties experienced by banks as a ‘string of recent meltdowns’ while MP Kevin Hollindrake eloquently likened the notorious TSB online collapse to ‘when KFC ran out of chicken’ – either way, there’s a universal feeling of disdain towards the offending financial institutions and a growing call for compensation for those affected.
The Treasury select committee has launched an inquiry focussing primarily on the cause of the problems, the extent of the damage caused to consumers and whether regulators like the Bank of England and the Financial Conduct Authority are equipped to hold firms to account in the event of a crisis. Other companies that will fall into the investigation are
Barclays and RBS for consistent online issues as well as Visa after the failure of its entire network earlier this year.
While not being able to log into online banking can be painted as simply a mild annoyance, the impact of banks letting us down online is tangible. In the case of TSB’s failure, Direct debit records went missing, as did loans and mortgages. Salaries couldn’t be paid, and payments missed in turn could have had a negative effect on hard-built credit scores and further financial repercussions. Speaking to the Guardian, the owner of Mentor Lock and Safe Company in Wallington, south London, said his small business had 'literally stopped' for almost a week thanks to the failure of TSB, and he certainly isn’t an isolated case.
Nicky Morgan, chair of the committee behind the proposed inquiry, has said: ‘The number of IT failures at banks and other financial institutions in recent years is astonishing. Millions of customers have been affected by the uncertainty and disruption caused by failures of banking IT systems. Measly apologies and hollow words from financial services institutions will not suffice when customers aren't able to access their own money and face delays in paying bills. As bank branches close and customers are ushered towards online services, the availability of those services is vital.’ She’s not the only authority who’s looking to lay responsibility at the banks’ doors, with many calling for compensation similar to the £70m RBS paid out after the previous big IT banking meltdown in 2012.
So who pays for this compensation?
While TSB will publicly compensate for any claims, the firm will look internally to lay blame where it’s due – as will the Treasury’s inquiry. If the fault was caused by an in-house employee at TSB, there’s little avenue for it to be recompensed unless covered under an insurance policy, policy terms and conditions pending. However, if the fault can be attributed to an IT contractor that worked with TSB during the migration, the bank will look to claim at least part of its costs back.
It’s in cases like this that Professional Indemnity insurance is invaluable. Despite the fact that all TSB Bank accounts are protected up to the sum of £85,000 by the Financial Services Compensation Scheme, the firm will look to gain back money lost during the proceedings, the total of which is likely to be enormous.
Professional Indemnity insurance covers legal costs, expenses in defending any claims and compensation payable, protecting the contractor from paying out of their own pocket and, ultimately, bankruptcy. If there was ever an example of why insuring your business and livelihood needs to be protected when the worst happens, this is one of the clearest.