TheFinancial Services Authority has fined a business process
outsourcing suppliermore than £500,000 for
inadequacies in its systems and processes.
The incident arose when staff at financial services firm
Liberata - which carries out policy administration for several life
and pensions companies - failed to cope with the volume of messages
generated by its computer system. This led to life and pension
policyholders losing money on their investments.
The Financial Services Authority fined Liberata £525,000 - more
than 10% of the company's profit in the last financial year - after
failures in its systems and controls meant policyholders did not
receive documentation on their investments.
The fine - the first levied against an outsourcer for failing to
issue documents - sets a precedent which could lead to other
outsourcers being held accountable for technical failures.
It came as the Financial Services Authority (FSA) published
research warning that financial service companies were
failing to check the IT security of firms to which they outsourced
operations.
"As far as the FSA is concerned, outsourcers are in effect the
IT department for the financial service company [they] provide
services to," said
Chris Skinner, chief executive at financial services think tank
Balatro.
Phil Hogan, executive director at Liberata, said the firm's
computer system sends error messages when, for example, one holder
of a dual life policy dies, so staff can make manual corrections.
The process failed when the computer system sent out more messages
than staff could deal with.
"As we put more and more business in the system these errors
became more significant and the manual process failed to deal with
them," he said.
The company has now redesigned the process to keep pace with the
system, he said. "We have automated the manual process because
there is enough [messages] in the system to warrant this."
According to the FSA, Liberata should have sent out letters to
30,000 policy holders advising them of information that would help
them manage policies.
It calculated that 161 customers suffered a financial loss
totalling £17,584 as a result of not receiving the information.
"This is the first time we have fined an outsourcer for failures
related to issuing documents," said a spokesman.
The FSA told Computer Weekly that outsourcing companies must
ensure they have adequate system controls for their IT systems.
"It is important that firms such as outsourcers have very good
system controls that goes beyond the actual technology being used
but also management information systems and reporting systems to
pick up problems," said an FSA spokesman.
The FSA fined outsourcer Capita Financial Administrators Limited
300,000 in March 2006 because it "had not maintained effective
systems and controls to mitigate the risk of fraud."
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