A Bank of England payments system that processes hundreds of billions of pounds a day collapsed for nine hours last year because of defects in its design, according to a damning report.
Accountants Deloitte estimated in their report for the Bank that as many as 700 homebuyers may not have not been able to complete their transactions that day as a result of the unprecedented outage.
The real time gross settlement (RTGS) system had started to malfunction at 6.02 am on 20 October – two minutes after it opened for the day – but a deputy governor, Sir Jon Cunliffe, was not alerted to the scale of the problem for two and a half hours, the report found.
Cunliffe only became involved because the three individuals to whom the problem should have been reported – Charlotte Hogg, chief operating officer, Minouche Shafik, another deputy governor and Chris Salmon, executive director for markets – did not see the email they received at 7.23am. “All three people it was sent to were out of the country on official business and in different time zones, so it was not immediately picked up,” Deloitte said.
The system, vital to CHAPS payments, eventually handled 142,759 transactions worth £290bn that day after its usual 4.20pm closing time was extended to 8pm.
CHAPS, which is crucial for moving larger payments around the financial system and has been in operation for 18 years, collapsed after a bank was removed from the system for the first time since 2008.
Deloitte, which was paid £164,000 for the report, found that the Bank did not have procedures in place to deal with a systems failure and did not use a backup system because officials did not have confidence it would work.
Bank of England governor, Mark Carney, alerted to the problem on Cunliffe’s request, had asked for potential “pinch points” to be identified but “the specific issue regarding the timing of housing market transactions was not identified early enough and therefore not escalated,” the report found.
Yet, despite the chaos, “substantive risks to the financial system” were avoided, the report said. Some 36 individuals had contacted the Bank directly enquiring about redress and were directed to their banks for further information. The Bank has paid nine claims for £4,056 and does not expect any more.
The Bank repeated the apology it made on the day and will now delay adding new banks to the payments system. It will make changes to the way it operates and create a formal system for escalating problems.
Andrew Tyrie, chairman of the Treasury select committee, said the new committee formed after the election on 7 May “may well want to examine this failure”.
Shafik said the Bank was committed to implementing the recommendations in the independent review. In an interview she also waded into the debate about the low rate of inflation – which has hit zero – saying core inflation was “not that low”. Her remarks are in contrast to the Bank’s chief economist Andy Haldane who said last week that rates may need to be cut from their current record lows of 0.5%.
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