Category Archives: Financial Services IQ Trainwrecks

Bank overcharging in Ireland (again)

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In a taste of the change of emphasis that is seeping through the global financial services industry, the Irish Financial Services Regulatory Authority is pursuing 24 cases of overcharging by banks and insurance companies, according to this morning’s Irish Independent

Of course, stories of financial services overcharging and other information quality disasters in that industry are not new to the IQTrainwrecks reader. Over the years we’ve covered them here, here, here, here, here , here, here, and here (to select just a few).

We’ve also covered the growing “hard touch” trend in Financial Services that is bringing a clear “cost of non-quality” to bear on banking/financial services processes (see this post from August of last year).

Why is this now an IQTrainwreck again?

  • Regulators are adopting a tougher line with banks about overcharging/undercharging (a bit like the regulators did in my former industry – telecommunications).

The new chief of the Irish Financial Services regulator is concerned about the number of overcharging cases and recently said that:

It is clear from recent cases that change is needed in how firms handle charging and pricing issues.

  • Financial services companies, facing into severe cutbacks in budgets and man power are potentially increasingly exposed to the risks of manual work arounds in processes simply stopping, end-user computing controls not being run,  and ultimately inaccuracies and errors creeping into the information they hold about the money they hold for or have loaned to customers.

As the regulatory focus shifts from ‘light touch’ to ‘velvet fist’, those financial services companies who invest in appropriate strategies for managing the quality of information in a culture of quality will be best placed to avoid regulatory penalties.

You can’t make an omlette with out breaking a few Eggs

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A correspondent in the field, Nic Jefferis has sent in this story about how a “database glitch” has affected customers of the Egg on-line bank who have been trying to pay their bills using their NatWest debit cards.

The BBC describes the problem very succintly:

“The problem is that the Egg website does not recognise Natwest Visa Debit cards as being legitimate cards.”

The root cause seems to stem from the fact that key base data used by Egg’s on-line bank, the valid set of Bank Identification Numbers, appears to to not include NatWest Visa debit cards as they are only being rolled out at the moment to replace the existing Maestro Debit card facility currently in use at NatWest.

And at this point the second common component of IQTrainwrecks raises its head – who is responsible for the data.

Egg get their data from Experian. As soon as the problem arose, Egg contacted Experian to get a solution.  Natwest state that they were “aware of this problem and raised it with Egg at the outset” and were waiting for Egg to sort out the problem in their systems.

Somewhere in the process for maintaining BIN master data something has gone awry which has affected the ability of NatWest customers to pay bills using their new Visa debit cards. As the problem appears to be in the underlying base data, it is possible that there are impacts wider afield than just Egg’s payment systems.

As a source quoted in the BBC report says, this should be a straightforward process and an error like this would be highly unusual. But as we know here at IQTrainwrecks, it is often the simple errors that can have the biggest knock on impacts in downstream systems and processes resulting in loss, damage, injury, or frustration.

No smoke without ire – Life Insurance Overcharging in Ireland

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RTE News in Ireland ran a story last night on overcharging by Irish Life Assurance companies arising from a mis-classification of customers as smokers. (link to the item is here, but you may not be able to access it if you are not in Ireland).

On foot of two complaints, the Irish Financial Services Ombudsman investigated two companies and has identified up to 500 customers affected.  However more customers may be affected in other companies .

The two companies affected blamed “computer and administrative errors” for the misclassification and the resulting overcharging. In other words, an Information Quality problem.

The financial impact for the two customers who complained was between €1100 and €2500 on policies of different lengths. Taking a crude average value, this would suggest that for the 500 cases the Ombudsman suspects in the two companies he looked at the total cost of refunds will be in the order of €900,000.

The cost of the investigation of possible errors and the correction of records would, of course, be on top of this amount.

The Financial Services Obmudsman has asked the Irish Financial Services Regulator to conduct an industry wide audit of all Life Assurance companies to identify further instances of this kind of overcharging based on misclassification of customers. As a result, the total amount of refunds will inevitably rise, as will the cost to the industry of inaccurate information.

The news report makes no mention of the potential Data Protection issues arising here under Irish Data Protection law, which does require information to be kept accurate and up to date. But the Irish Financial Ombudsman used to be the Data Protection Commissioner, so I am sure he has flagged that to the affected institutions himself.

Poor Quality Information costs money – and you can take that to the Bank

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via Keith Underdown comes this story hot off the press release engine in the UK’s Financial Services Authority.

Barclay’s Bank have been fined stg£2.45 million for “failing to provide accurate transaction reports to the FSA and for serious weaknesses in systems and controls in relation to transaction reporting”. The fine would have been higher (stg£3.5 million but for the fact that Barclay’s co-operated with the investigation and agreed to settle the matter quickly). According the the FSA press release

“Complete and accurate transaction reports are an essential component of the FSA’s market monitoring work. Barclays’ reporting failures could have a damaging impact on our ability to detect and investigate suspected market abuse.

“The penalty imposed on Barclays is significantly higher than previous penalties imposed for transaction reporting errors. This reflects the serious nature of Barclays’ breaches and is a warning to other firms that the FSA will not tolerate inadequate systems and controls.”

This is an interesting warning that serves as an indicator of how Regulatory systems and enforcement will be changing in a post-Recession world.

Of course, the true cost to Barclays is much greater than the cost of the fine. For one, there is the reputational damage that comes from being fined to this extent by the FSA. And then there is the cost of correcting errors and fixing the defective processes, which Barclays has done “including commissioning a review of its transaction reporting process and committing extensive resources to improve its processes and resolve the errors.”

Reviews and resources don’t grow on trees you know.

This is a clear example of an IQ Trainwreck.

Double Debits – directly. (Another banking IQTrainwreck)

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Courtesy of our Irish colleagues over on Tuppenceworth.ie comes yet another tale of poor quality information in financial services. Although this time it is at the lower end of the scale, at least on a per customer basis. However, the impacts on a customer are still irksome and problematic. And the solution the bank has put in place is a classic example of why inspecting defects out of a process is never an exact or value adding science.

It seems that Bank of Ireland has recently introduced some new software. Unfortunately, a bug in the software has resulted in certain transactions (deductions) being posted multiple times to accounts, resulting in cash-strapped Irish people being more strapped for cash than they’d expected.

Simon McGarr, (one of the authors over at Tuppenceworth) sums up the story and the reason why this is an IQTrainwreck:

I spotted a double charge on my account, for a pretty significant sum of money (is there any other kind?).

When I rang up to query it, I was told Bank of Ireland have changed their computer systems recently (Two weeks or so).

As a result, some transactions are being applied to accounts twice if they were processed through Laser [a debit card system in Ireland — ed.], or if they were a Pass machine [what the Irish call ATMs –ed.] withdrawal.

They say that if you spot the double charge, and ring them up to complain, they’ll send an email to their programmers to reverse the second charge.

I suggested to the polite customer services person that the bank might want to warn their clients to be alert for these double charges, as they could suffer additional charges (from appearing to breach their overdraft limits, for example) unless they spotted the bank’s mistake.

(Emphasis is added by this author)

Simon goes on to add (in a comment) that he has been without the benefit of his hard earned cash for 10 days (and counting).

Continue reading →

Dublin bank bungled foreign exchange transaction (in 2001)

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Following on from this morning’s story about the New Zealand overdraft fiasco, a few further cases of Information Quality trainwrecks in Financial services have come to our attention.

This first one is from 2001 and was found on the BBC.co.uk website, with further reporting from The Telegraph

Bank bungles pesetas/euros

Back in 2001, David Hickey was emigrating from Ireland to Spain. He asked his bank to change IR£1500 into pesetas, but an error in the bank meant that the  amount transferred was in euros, not pesetas. IR£1500 was approximately 300,000 pesetas. Mr Hickey received EUR300,000 into his account.

The bank eventually had to take legal action in Spain to freeze Mr Hickey’s accounts with a view to getting the money back.

At the time, the bank declined to comment further to the media on the matter and the Irish police were of the view that no criminal offence had taken place because of the ‘technical error’ (i.e. IQTrainwreck) involved.

Other Trainwrecks

We’re researching the other IQTrainwrecks that came to light this morning on this theme, not least to make sure we haven’t covered them here already. Expect further updates in the coming days.

Antipodean Bankers Sheepish over Overdraft Bungle (Again)

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New Zealand Couple do bunk with bungled overdraft funds

Courtesy of  @Firstlink and @DataQualityPro on Twitter, and hot of the presses at BBC News comes this case of an IQTrainwreck in New Zealand.

Police are hunting for a pair of nefarious desperadoes who took advantage of a poor unsuspecting bank which deposited NZ$10 Million in their account instead of the NZ$10,000 that they had requested. That’s a difference of three zeroes, but in the wrong place.

The couple, it seems, have withdrawn an undisclosed amount of the money and appear to have left the country. They are being pursued by the authorities through Interpol, and it seems the Australian bank that gave them the money by accident are eager to have it back:

Westpac media relations manager Craig Dowling said the bank was “pursuing vigorous criminal and civil action to recover a sum of money stolen”.

Now, this is not the first time that something like this has happened in the Antipodes, and the last time it was WestPac who were over-generous with their credit.

Oops we did it again before

Back in September 2007 we carried the story of New South Wales business man Victor Ollis who, as a result of an undetected (by WestPac) error had benefited to the tune of AUD$11 Million. The quote below is from the original story on Australia’s news.com.au

Mr Ollis had an automatic transfer facility with the bank, which topped up his business account using funds from his personal account.

The transfers should have been stopped after his personal account was overdrawn in February 2004, the court heard yesterday.

But due to an error at Westpac, his account continued to be replenished – only with money “from the bank’s own pocket”.

Between June and December 2005, Westpac honoured cheques totalling about $11 million written by Mr Ollis.

WestPac sued Mr Ollis and were awarded their money back plus interest.  However, as Mr Ollis was apparently terminally ill at the time, there is a chance that they never got their money back.

A proud tradition in banking

However, WestPac are not alone in the pantheon of banking information quality trainwrecks. (We won’t talk about the current Global Financial Crisis and how some of its roots can be traced back to poor quality information… not yet anyway).

My personal favourite from our archive of Banking Information Quality Trainwrecks has to be this one though…

  • From Australia in  December 2007 – “Cat Gets Credit Card“. In this case it wasn’t WestPac but the Bank of Queensland who goofed.

But we’re only scratching the surface

Here at IQTrainwrecks.com we know we are only scratching the surface of these issues. Please contact us with your examples of Information Quality Trainwrecks (particulary in banking) so we can add them to the Roll of Honour.

Apple App Store IQ Trainwreck

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It appears that Apple iPhone App developers are having difficulty getting paid at the moment, according to this story from The Register. (Gizmodo.com carries the story here, Techcrunch.com has it here,

According to The Register:

A backlog in Apple’s payment processing system has left some iPhone developers still waiting for February’s payments, leaving some at risk of bankruptcy and considering legal action against the lads in Cupertino.

Desperate developers have been told to stop e-mailing the iTunes finance system and to wait patiently for their money – in some cases tens of thousands of dollars – while Apple sorts things out.

It would appear from comments and coverage elsewhere that this problem has been occurring for some developers for longer (since late 2008 according to the TechCrunch article and this article from eequalsmcsquare.com (an iphone community site))

The article goes on to explain that:

According to postings on the iPhone developer community Apple has been blaming bank errors and processing problems for the delays. Complainants are being told that payments have been made, that bank errors have caused rejections[.]

One commenter on the story on The Register, commenting anonymously, attempts to shed some light on this with an explanation that, from an Information Quality point of view, sounds plausible.

  • Two American banks merged (was it Washington Mutual and Chase?) and the SWIFT code for the customers of one had to change. The bank didn’t tell the customers and Apple had the payments refused. Apple seem to be manually changing the codes in the payment system, but that’s separate from the web interface where devs enter their bank details.
  • A lot of American banks don’t have SWIFT codes at all. Royalties from e.g. EU sales are sent from Apple (Luxembourg) S.A.. The chances of this money arriving at Bank Of Smalltown seem slim at best.

This what we have here is a failure to manage master data correctly it seems, and also a glaring case of potentially incomplete data which would impact the ability for funds to flow freely from the App Store to the Developers.

The Anonymous commenter’s explanation would seem to hold water because Apple are claiming that “bank errors have caused rejections”. Having had some experience with electronic funds transfer processes, one of the reasons a funds transfer would fail would be if the data used was incorrect, inconsistent or inaccurate. This would happen if the SWIFT codes of Bank A had to change (or if Bank A and Bank B had to have new codes issued).

However, some commenters based in the EU have reported that they have given Apple updated bank details and are still awaiting payment, which suggests there may be yet another potential root cause at play here that may yet come to light.

Apple still owes me more than $7,500 since September 2008 for US and World regions. I supplied them with a new SWIFT code and a intermediary bank they could use last month, but still nothing. Sent them tons of emails but I never got to know what is really wrong/faulty so I just tried to give them another SWIFT code that DNB (Biggest bank in Norway) uses. All other region payments have been OK.” (quote from comment featured on this article)

So, for the potential impact on iPhone Apps developers cash flow, and the PR impact on one of Apple’s flagship services, and the fact that management of the accuracy, completeness and consistency of key master data for a process, this counts as an IQ Trainwreck.

Tracker mortgage off target

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RTE news today reports that AIB Bank (one of the largest banks in Ireland) has admitted an error in applying interest rate changes over a 12 month period to so-called ‘tracker’ mortgages.

This has resulted in customers having underpaid their loans in recent months. The bank is, kindly, offering the affected customers the option of paying the shortfall in one go or spread over the remaining period of their mortgage.

‘Manual Error’ is blamed for the problem, which (according to RTE) affects 500 customers.

Tracker mortgages track the base rate of a specific Central Bank (in Ireland this is the European Central Bank), with a fixed margin payable on top of the base rate.

[Update] The Irish Times this morning reports that the Irish Financial Services Regulator is to examine the Bank’s approach to recouping the under-paid mortgage amounts. Quoting a spokesperson for the Regulator:

“In instances where an institution is seeking to recoup money as a result of the failure of its own internal systems we would expect it to be flexible in terms of the arrangements it comes to with consumers”

This story is also carried in the Irish Examiner news paper today

The Butterfly Effect

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I’m sure most of you are familiar with the concept of the “Butterfly Effect“, that part of Chaos theory that tells us that the small disturbances of the air by a butterfly’s wings in Cleveland can cause a natural disaster on the far side of the world.

A popular myth is that the term ‘bug’ as applied to software glitches was coined by Admiral Grace Hopper after moths (and perhaps butterflies) were removed from the machinery of a Mark II Univac computer which had stopped working.

These two tidbits are related by a recent story in the Financial Times about how ‘coding errors’ (bugs) in computer models has resulted in a debt rating agency having to acknowledge they’d ranked investment vehicles wrongly and as a result increased the risk exposure of investors in those funds.

From the FT:

Moody’s is moving to re-examine the accuracy of all its computer models and place them under a centralised monitoring system after it formally acknowledged earlier this week that a glitch had appeared in one such mathematical model used to rate complex products.

Later in the article:

The moves come after the agency admitted on Tuesday that a “coding bug” had led the agency to incorrectly award top notch triple-A ratings to about $1bn of complex instruments known as constant proportion debt obligations (CPDOs) in 2006. This bug was first revealed in an FT investigation in May.

So, the bugs were found by a newspaper investigation in May 2008.. embarassing. The bugs affected the ratings applied to these CPDOs, and may have distorted the investment strategies of institutional investors. The Financial Times article in May tells us that:

The products were designed for institutional investors. In the recent credit market turmoil, those who still hold the products will have suffered some paper losses while others who have bailed out have lost up to 60 per cent of their investment.

Sheesh… up to 60% losses on investments. And it hit the papers.

The FT (28th April 2008) reports that Ratings agencies are coming under increased pressure to assure the quality of the information used in assigning credit ratings. Ratings agencies are reported to have told Regulators that:

Guaranteeing the quality of information used to assign credit ratings on structured finance securities would be “overly burdensome and redundant”

However, the burden and cost of avoiding bugs in software, processes and controls that impact on the quality of key information used in the Financial markets should be weighed against the risk of financial ‘natural disasters’ where decisions are made on foot of inaccurate information.

[Update] It would seem that the SEC and the European Commission (the civil service of the EU)  are intending to take action to regulate and regularise the dealings of these ratings agencies…[/Update]