Friday, August 06, 2010

MAS Capital Charge on DBS a Mere Slap on the Wrist

Yesterday, it was reported that the MAS (Monetary Authority of Singapore) had slapped a $230m capital charge on DBS as a 'penalty' for the massive systems failure that occurred last month and that affected more than 1,000 DBS and POSB automated teller machines, Internet and mobile banking services, as well as Nets and credit card transactions.

The MAS required DBS to set aside S$230 million additional regulatory capital for operational risk and told it to improve customer communications procedures. This was widely noted in the press that MAS as a 'censure'. Teo Swee Lian, deputy managing director, financial supervision, MAS, was recorded as having said: 
"We expect all financial institutions to put in place a robust technology risk management framework that will ensure the reliability, resiliency and speedy recoverability of the institution's IT systems and infrastructure, whether outsourced or in-house. We have recently written to the CEOs of all financial institutions to remind them of this."

But does this set of measures on the part of the MAS constitute a real 'censure'? And does the $230m capital charge amount to much of a 'penalty'? Not according to research analysts who have been covering DBS stock.

The capital charge was described by research analysts as a 'non-event' and the impact of it is 'negligible'. That's all fine and dandy for shareholders of the bank - but it's not good news for retail customers of banking like you and me. Surely DBS and its executives have gotten away with a mere slap on the wrist. For the magnitude of the disruption to the banking system that was caused by the systems failure, the penalty should have been much higher. Instead of a mere capital charge, a significant fine should have been imposed on the bank both as a punitive and preventative measure - a warning that such failures are unacceptable. Instead, the MAS capital charge says to Piyush Gupta that it's really no big deal for you to cock-up like this. Furthermore, the capital charge does not contribute in any way to preventing further system failures. MAS should have taken the opportunity to tighten technology & system audits as well.

The fact of the matter is that banking is a utility business that provides a social benefit to society. Society cannot afford to have its checking and savings accounts and transaction systems shut down for any sustained period of time, just like we cannot afford a shut down of water or electricity from our homes for a sustained period. Without reliable banking and transactions systems, business (and life) would simply grind to a halt.

While it is true that Piyush Gupta has been unreserved about his apology to Singaporeans about the downtime, MAS' actions have not communicated the severity of the failure to the banking industry. MAS' actions do not acknowledge the critical importance and utility-type nature of the banking services to society.

The capital charge is but a slap on the wrist, and Singaporeans deserve better from their regulators.

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