The troubled Co-operative Bank has said that it will focus on improving its IT systems after posting another big financial loss. It also follows an admission that a basic IT error caused it to breach the Consumer Credit Act.
The bank, which ran up huge losses following its ill-advised merger with Britannia Building Society and the consequent costs of trying to put together an IT platform, filed losses before tax of £1.3bn. It also revealed that an IT error had added as much as £400m to its losses by miscalculating "conduct and legal documentation issues" relating to the Consumer Credit Act.
The miscalculations were down to a number of consumer credit loans in which the Bank's computers had issued statements three days late - after 368 days rather than the 365 days stipulated under the Consumer Credit Act.
The costs arising from the error form part of an extra £400m that the bank says that it will need to raise as part of its separation from the Co-operative Group, which is also in dire financial trouble.
In its annual report out today, the Co-operative Bank claims that it is aiming to fix fundamental flaws in its banking systems: "This means investing in IT systems that deliver branch-based and digital banking in a way that meets our customers' expectations.
"Behind the scenes we are improving and consolidating the systems that support our products and operations, making them more resilient, faster and more efficient."
The IT overhaul is coming against a backdrop of branch closures and job losses as the bank - which has always had higher than average costs - seeks to cut costs and better focus on the customer.
The bank's CEO, Niall Booker, claimed that some of the issues unearthed in recent months might also put off the date of its anticipated flotation on the London Stock Exchange: "The management team's continuing review has unearthed a range of conduct and legal issues since December 2013 which has contributed to the need to further strengthen the bank's capital position over and above the Co-operative Group's 2014 contribution."
Neil Kinson, European vice president at process automation software supplier Redwood Software, said that it demonstrated how complex organisations like banks needed to put in place better processes.
"This situation could have been avoided if the bank had a better control over its operations," said Kinson. "The Co-operative Bank's results are not just a lesson to banks, but all organisations - it's time to move on from reliance on slow, manual effort or risk further technology mishaps in the future.
"Consumers are savvier than ever before and if your organisation can't promise efficiency and reliability, there is little to stop these individuals jumping ship to another service provider," said Kinson.
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