INTERVIEW-UK lawmakers consider radical overhaul of banking IT

Matt Scuffham
Reuters Middle East

* Banking standards commission extended until April

* Commission member Garnier backs account portability

* Standards agenda to be stepped up next year

LONDON, Nov 23 (Reuters) - British lawmakers are considering

an overhaul of banks' IT systems to stimulate competition by

making it easier to switch accounts, a member of an inquiry into

banking standards told Reuters.

The parliamentary commission is seeking ways to break the

stranglehold of the few large lenders that have long dominated

the British banking sector. The creation of IT infrastructure

and the reluctance of customers to move accounts are viewed as

two of the most significant barriers to new entrants.

Conservative MP Mark Garnier said he supported proposals for

a system that would enable customers to retain their account

details when they move banks, adding that money being used to

maintain outdated systems would be better spent creating an

entirely new framework.

The former investment banker said that plans for banks to be

given a strict seven-day deadline when transferring customers'

accounts to rival institutions did not go far enough and the

commission is assessing a more radical solution.

"Seven-day switching is a red herring, it's missing the

point," Garnier told Reuters. "You cannot have 40-year-old

systems. I'd like to see full account portability and a uniform

IT system that makes it easier for challengers to enter the


The fragility of banks' computer systems was laid bare this

year by a software glitch that caused chaos for millions of

Royal Bank of Scotland customers.

Speaking to the commission this month, Andy Haldane, the

Bank of England's director of financial stability, said he was

keen on customer account details being stored in a "central

utility-type function". Haldane said that banks would then

"compete to plug and play into that central utility".

"Once the information is held centrally it will become

easier to switch both deposit accounts and loan accounts. This

is potentially a transformational idea for the industry and one

I hope it could embrace," Haldane said.

Although analysts say that such a move would cost several

billion pounds, Haldane does not believe it would be "out of

reach financially", given that banks are already spending

billions each year on IT, the majority of which is used to

maintain legacy systems. RBS, alone, is expecting to spend about

1.5 billion pounds ($2.4 billion) on implementing changes to its

IT systems this year.


The commission was set up in July after the government came

under pressure to scrutinise banks more effectively in the wake

of Barclays being fined 290 million pounds for

manipulating key interest rates including Libor - one of a

number of scandals that have rocked the industry.

Its original remit to examine standards and conduct within

the industry shifted when it was asked to conduct

pre-legislative scrutiny of the government's draft banking

reform bill. The pre-legislative work has hogged the

commission's agenda so far, focusing on issues relating to the

separation of banks' retail operations from riskier investment


The commission has been asked to report its views on the

proposed legislation by Dec. 18. The inquiry will then be

extended until April, Garnier said, and the commission will step

up its examination of standards within the industry next year.

Garnier said that, though the inquiry was originally set up

in response to the Libor scandal, its remit was much broader.

"Libor is not the issue but a symptom of the problem, and we

are trying to get to the bottom of that problem. The issue is

culture and standards."

Among the areas of focus going forward will be how the

industry can avoid further mis-selling scandals. Britain's banks

are facing a bill of more than 12 billion pounds ($19 billion)

to compensate customers wrongly sold payment protection

insurance on loans and mortgages and the full extent of interest

rate swap mis-selling is still emerging.

The recommendations of the commission could have a major

bearing on how Britain's banking sector will look in future

years. HSBC Chairman Douglas Flint told the commission

that the bank's decision on whether it will stay in the UK had

been postponed until 2015, when it expects the regulatory

environment to be clearer.

The commission, which is led by Conservative MP Andrew Tyrie

and includes former finance minister Nigel Lawson and the next

Archbishop of Canterbury, Justin Welby, has a huge amount of

ground to cover in the coming months.

"It's a huge thing. It's the epicenter of the political

world at the moment," Garnier said.

($1 = 0.6271 British pounds)

(Editing by David Goodman)

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