IBS Journal January 2016


UK regulator fines Raphaels Bank £1.3m for outsourcing failures


Outsourcing failures at a small UK-based bank, Raphaels Bank, have incurred a hefty fine by the Prudential Regulation Authority (PRA). Andrew Bailey, deputy governor for


Prudential Regulation and CEO of the PRA, states: ‘You can delegate or outsource work but you cannot delegate or outsource responsibility.’ He adds: ‘Raphaels put its safety and


soundness at risk by failing to have ade- quate controls in place over their outsourc- ing. The lack of controls meant that Raph- aels did not know what its capital position was or who it was exposed to. This behav- iour could have had severe consequences for Raphaels which is why the PRA has tak- en the relatively unusual step of levying a fine in this case.’ The fine amounts to £1.3 million. As at April 2014, Raphaels owned 334


ATMs in the UK for public use in locations such as bureaux de change, railway sta- tions and airports. Raphaels also owns mobile ATMs which are used at major sporting and other events. In September 2006, Raphaels agreed


to enter into a joint venture with another company in its parent’s group (referred to as Company C by the PRA) to provide ATMs in various locations around the UK. Raphaels outsourced its ATM finance


function to a team within Company C but did not have appropriate controls around


London © August Brill, Flickr


this arrangement – such as suitable written agreements or due diligence. From 2007 to 2014, Company C


employees in the team responsible for managing the outsourced functions improperly transferred funds without the knowledge or consent of Raphaels and took steps to conceal their actions. The PRA has seen no evidence that


anyone else in the group was aware of their actions. The funds were transferred from Raphaels to deal with cash flow problems in Company C. This meant that Raphaels was exposed to Company C, which would have led to severe financial repercussions if Company C had become insolvent. As a result of the failings around its


outsourcing, these breaches meant that Raphaels had inadequate oversight and


control over its regulatory capital position. Specifically, from May 2011 to November 2013, Raphaels failed to understand and accurately report its capital requirement and failed to understand that it had a large exposure to the group of more than 25% of its capital resources. Raphaels agreed to settle at an early stage of the PRA’s investigation and there- fore qualified for a 30% stage 1 discount under the PRA’s settlement policy. Were it not for this, the PRA would have imposed a financial penalty of £1.8 million. Raphaels has been owned by


London-based Lenlyn Holdings since 2004. In 2015, there were reports that Lenlyn Holdings was preparing to sell off the bank. Lenlyn Holdings also owns the Interna-


tional Currency Exchange (ICE). Antony Peyton


Hampton Mortgage Servicing takes mortgage portfolio administration to the cloud with Phoebus


UK-based Hampton Mortgage Servicing (HMS) has signed up Phoebus Software’s eponymous cloud-based platform. HMS, which provides specialist admin-


istration for shared equity mortgage portfolios, has brought Phoebus in on a three-year contract. The deal will see HMS migrate its existing data onto the Phoe- bus cloud.


HMS analysed a number of differ-


ent providers, according to its manag- ing director, Paul Morris. The company’s


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decision to opt for Phoebus was down to the products flexibility and integrity, he adds. Phoebus Software, founded in 1989 and based in Surrey, has a number of UK mortgage firms, building societies and small banks on its books, including Raphaels Bank, Saffron Building Society and Exact Mortgage Experts. It is also a long-standing software sup-


plier to Crown Mortgage Management, which got acquired by Capita in May 2014


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(and subsequently rebranded as Capita Mortgage Services). A newer entrant into the UK bank-


ing market, SME-focused Cambridge and Counties Bank (CC Bank), selected Phoebus Software as its core system provider in ear- ly 2013 and went live on the new system later that year. Another newcomer, OneSavings Bank, has also implemented Phoebus’ solution to service mortgages.


Alex Hamilton


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