Bank of England payments system failure spooks investors

October is a scary month for financial markets. The Wall Street panic of 1907, the 1929 crash that ushered in the Great Depression, and Black Monday 1987 all fell in October. With that kind of history, investors are understandably nervous at this time of year, particularly after the wild swings seen last week on world markets.

So when news filtered through to the City on Monday that the UK’s payments system was in trouble, many feared the worst. A warning from the Met Office that Britain was about to be hit by the tail-end of Hurricane Gonzalo ratcheted up the anxiety levels, reviving memories of the great storm of 1987, which tore through the country as the financial markets went into meltdown.

It’s still not entirely clear what went wrong, but it appears that, after supposedly “routine maintenance” over the weekend, part of the Bank of England’s automated system for settling high-value payments failed to function.

This in turn led to the enforced suspension of the clearing house automated payment system, which processes around 140,000 transactions a day, worth some £277 billion (€351 million). These include payments for house purchases, as well as business deposits.

From 6am until nearly 4pm, the automated system remained suspended, forcing the bank to process transactions manually. A number of house- buyers were caught up in the chaos, as funds to complete their deals failed to arrive in accounts at the allotted time. There were reports of some buyers – removal vans in tow – being denied the keys to their new homes until the cash had cleared.

Once the system was back online, its hours were extended until 8pm in an effort to clear the backlog, but estate agents warned the knock-on effect of the delays could escalate as the week wears on.

Embarrassing

The failure of such a crucial part of the central bank's payments system is deeply embarrassing for Bank of England governor Mark Carney and his team at Threadneedle Street. Carney has been critical of banks whose own IT systems have failed in recent years, notably Royal Bank of Scotland, which has suffered several serious systems glitches.

Reports that the outage may have been caused by something as routine as the change of name of a single bank on the system – from Northern Bank to Danske Bank – will do little to reassure the City that the nation’s vital payments infrastructure would be able to withstand something far more serious, such as a cyber-attack.

There are also accusations the bank was slow to realise the seriousness of the situation, or at least too slow in alerting the City. Although the system failed to open at the usual time of 6am, it took more than five hours for Threadneedle Street to issue an unhelpfully brief statement admitting there was a problem, but giving no indication of when it might be fixed or how widespread the impact might be.

Carney was more forthcoming by the end of the day – particularly after a tongue-lashing from Andrew Tyrie, head of the treasury select committee. The governor promised a "thorough, independent review", which would look into not only the causes of the system failure but also the effectiveness of the bank's response.

Tyrie, meanwhile, is clearly already relishing the prospect of grilling the bank chief on the matter. The MP said he was writing to Carney to find out why such a crucial part of the UK’s financial infrastructure had failed. “We need to have confidence that the cause has been found and addressed,” he said.

Tesco blues

More bad news for Tesco chief executive Dave Lewis as he prepares to update investors tomorrow on the accounting scandal that has blown a £250 million hole in the group's profits.

As latest figures from Kantar Worldpanel showed its sales had tumbled by 3.6 percentage points in the 12 weeks to October, taking its UK market share down to 28.8 per cent, leading retail analyst David McCarthy at HSBC estimated the group will need to invest more than £3 billion if it is to restore the fortunes of its core domestic stores chain.

Spending should include sizeable price cuts, increased service in the stores and improved food quality, McCarthy said, warning the turnaround could take six years to achieve.

“There are no short-term solutions, short-cuts or cheap solutions,” he said.

"Tesco has disappointed the UK consumer for too long and it must rebuild trust, which can only be done by giving the consumer a better deal." Fiona Walsh is business editor of theguardian.com