Huge IT failure at Singapore bank

One of Singapore's largest banks suffered a major IT outage this Monday that took down its computer systems for seven hours. The outage knocked DBS Bank's back-end computer systems offline, leaving its customers unable to withdraw cash from ATM machines on Monday morning.

"We first knew of the problem at 3:00 a.m. (Singapore time) and by 10:00 a.m., all our branches and ATMs were fully operational. We are conducting a full investigation into the cause of yesterday's problem, thus will not be in a position to comment much about the cause at this point in time," wrote Jenny Lee, a spokeswoman for the bank, in an e-mail response to questions on Tuesday.

The outage affected all of DBS' consumer and commercial banking systems, but no data was lost during the system failure, she said.

When DBS branches opened at 8:30 a.m. Monday, the bank was able to accept cash cheques- personal cheques made out to 'cash' - worth up to S$500 (US$359) until systems were restored, DBS said in a statement. Customers could also make cash withdrawals over the counter, and branches stayed open for an extra two hours, until 6:30 p.m.

While the root cause of the outage remains uncertain, DBS is investigating the system failure with help from IBM, which runs some of the bank's IT operations under an outsourcing contract.

"The bank has multiple levels of redundancy to protect against such occurrences and this is the first time a problem of this nature has occurred. We are now conducting a full scale investigation with our main vendor IBM," said David Gledhill, managing director and head of group technology and operations at DBS, in the statement.

It wasn't immediately clear why the bank's backup systems didn't prevent the outage.

The collapse of DBS' IT systems caught the attention of the Monetary Authority of Singapore (MAS), the country's central bank, which oversees the financial services industry in the Southeast Asian city-state.

"As part of IT and operational risk management, banks are required to investigate promptly the causes of system breakdowns and take immediate measures to rectify system failures and restore customer services. Subsequent action is also required to strengthen the system and prevent future recurrence," an MAS spokeswoman said via e-mail.

Banks in Singapore are required to follow technology risk management and computer security guidelines issued by MAS that are designed to ensure the "robustness and resiliency" of banking and finance-related computer systems. "As part of its supervision of banks, MAS assesses banks' compliance with these requirements, and will take appropriate supervisory action where necessary," the spokeswoman said.

Changes to US Payment System Risk Policy

The US Federal Reserve will implement changes to its Payment System Risk (PSR) policy in early 2011. The revised PSR policy explicitly recognizes the role of the central bank in providing intraday credit to healthy depository institutions predominantly through collateralized daylight overdrafts. The policy encourages institutions to pledge collateral to cover daylight overdrafts by providing collateralized daylight overdrafts at a zero fee and by raising the fee for uncollateralized daylight overdrafts to 50 basis points.

A specific implementation date will be announced at least 90 days in advance.

In anticipation of depository institutions' changing needs for collateral management under the revised policy, the Federal Reserve, in collaboration with the financial industry, has assessed and identified opportunities to improve System operational systems. The Reserve Banks have been implementing enhancements to their own operational systems and processes that will improve the efficiency and effectiveness of pledging, withdrawing, and monitoring collateral. Many of these operational improvements will be available to institutions on or before the implementation date of the PSR policy changes.

British 'Ponzi scheme' defendants fined £115m

Three men accused of running the UK's largest-ever Ponzi scheme have been ordered to pay £115 million to the Financial Services Authority (FSA).

It is claimed that John Anderson, Kautilya Nandan Pruthi and Kenneth Peacock – who ran Business Consulting International – took up to £84 million from clients including celebrities and sports stars, using new investors' cash to pay returns out to older ones. hey were offering investors returns of up to 20 per cent a month, reports BBC News.

While the police investigation into their activities continues, a High Court hearing has ruled that they were unlawfully accepting deposits without FSA authorization.

As a result, Pruthi has been ordered to pay £89.7 million, Anderson £13.1 million and Peacock £11.6 million. The FSA said that despite the ruling, it would be unlikely investors will be repaid for their losses "in part or at all".

Margaret Cole, director of enforcement and financial crime at the FSA, said: "This case emphasizes the importance of taking care to ensure that any firm or individual consumers deal with are authorized or approved by the FSA."

Google Checkout introduces Android m-payments option

Google has launched a tool designed to enable one-man-band merchants moving from site-to-site to accept payments using its Checkout system and Android mobile phones.

In a blog, the search giant says it’s Android Payment Chrome Extension "helps merchants quickly set up a store and accept payments via Google Checkout and Android".

Before they can take payments, users need to set up a Checkout Merchant account and then create their own webstore template using the Store Gadget Wizard - a tool that taps Google Docs spreadsheets to help people quickly set up an online 'store

The store can then be embedded into a Google Sites page, which also needs to be built using pre-built templates.

Once set up, merchants can add the Android Payment Chrome Extension. They are then able to create a cart on a laptop containing the products a customer wants to buy. They then click the green Checkout with Android button and have the customer scan the QR code displayed with their phone. The QR code directs the customer to the buy page where they can complete their purchase.

Google admits the option has limited appeal, saying "this payment method may not be perfect for all cases".

PayPal readies itself for Mobile-Commerce

Already claiming to be the leader in mobile payments, PayPal has announced it had optimized its Express Checkout service for mobile devices. The new mobile service caps a busy week for PayPal that included the disclosure that alternative-payment provider Bling Nation Ltd. is developing a PayPal application. PayPal also added a feature to its new Adaptive Payments service that lets consumers pay merchants with a credit card while within an application, regardless whether the consumer has a PayPal account.

Like the existing Express Checkout, PayPal’s new Mobile Express Checkout is aimed at online merchants that already have a payment card merchant account but want to add PayPal as an acceptance option. Mobile Express Checkout has the same pricing as Express Checkout, 2.2% to 2.9% of the sale plus 30 cents for merchants with $100,000 or less in monthly sales; micropayments, sales of less than $10, are charged 5% plus 5 cents.

With the optimized Express Checkout service, mobile merchants get a better user experience on their smart phones or other mobile devices, according to Anuj Nayar, San Jose, Calif.-based PayPal’s director of global communications. The first iteration of Mobile Express Checkout is adapted for Apple Inc.’s iPhone and Google Inc.’s Android 2.0, an increasingly popular mobile-device operating system with merchants. Nayar says PayPal will adapt the new service to the other major mobile platforms, including Microsoft Corp.’s Windows Mobile and that used by Research in Motion Ltd.’s BlackBerry.

PayPal identified test merchants as Buy.com Inc., which is already using the system, and Nike Inc., which will implement it soon. Mobile Express Checkout will be available to PayPal’s other merchants later this summer.

The optimized service puts PayPal in a position to capture even more mobile transactions than it already is as payments through smart phones and new devices such as Apple’s iPad explode. The eBay Inc. subsidiary says it has been offering mobile payments since 2005 and processed $25 million in such payments in 2008, $141 million in 2009, and expects to exceed $500 million this year. More than 5 million PayPal users will be using mobile devices for PayPal transactions, Nayar adds. “This is the next great step for us to open it up for users to shop on the mobile Web,” he says. “The time has come for mobile purchases.” Nayar would not break down the existing mobile volume into person-to-person payments and on- and off-eBay merchant sales.

A study released this week by the National Retail Federation’s Shop.org e-commerce division and done by Forrester Research Inc. says surveyed retailers are generating only 2% of their online revenues through mobile devices or applications. Earlier this year, Cambridge, Mass.-based Forrester forecast that U.S. online retailing would generate $173 billion in revenues in 2010. Thus, mobile commerce may be in line to produce $3.46 billion in payment volume.

Many retailers have done little to promote m-commerce, but that seems likely to change soon. Only 2% of 59 Forrester’s responding retailers said they had “easy payment options” when asked about what kinds of information and alerts they offer customers on their mobile applications or mobile Web sites. When asked about what kinds of new information and alerts they planned for 2010, however, 24% mentioned “easy payment options.”

Meanwhile, the Bling Nation payment system, which recruits local banks and merchants to create closed-loop merchant networks with customers paying via mobile phones, disclosed that it is developing a PayPal application through the new PayPal X platform for third-party software developers. Bling is testing the application in Palo Alto, Calif., where it is headquartered. The application is notable because it’s a departure from Bling’s locally focused model so far, and it also represents a major extension of PayPal, the king of e-commerce, to the physical point of sale.

On that latter point, Nayar says Bling, not PayPal, is leading the way. PayPal has consistently denied it has intentions on traditional POS payment processing. “They came in through that [PayPal X] door,” Nayar says. “We’re very interested to see what they do with that, but it’s very early stages.”

Nayar notes that LiveOps Inc., a call-center outsourcing firm, got PayPal into the payroll business by using a PayPal app to pay several thousand temps working for a fundraiser sponsored by the American Idol television show. “PayPal X takes us into all sorts of areas that we weren’t in before,” he says.

Auditors under FSA fire

Auditors were just too willing to follow management's line before the crisis the UK Financial Services Authority has charged. Now the FSA has outlined plans to bring auditors under closer supervision, arguing that they had failed to challenge dubious accounting practices in the run-up to the financial crisis, in a discussion paper published this week with the Financial Reporting Council, the UK accounting regulator.

As examples of recent accounting failures, the FSA said, "A credit institution incorrectly netted down derivatives in the balance sheet leading to a misstatement of circa £900 billion... A thematic review recently undertaken on arrears reporting revealed errors by 29 out of 30 of the credit institutions investigated."

Most auditors had done decent jobs, the regulator wrote, but it reiterated that "it is the auditor's responsibility to challenge management when it believes the disclosures are inappropriate". The FSA listed several areas where, it said, auditors had been too ready to accept management's accounts at face value.

Its own research, the FSA said, "has led it to question whether auditors are sufficiently skeptical when challenging management's basis for determining the models and assumptions used to derive ranges of fair-value estimates - in particular, the selection of particular estimates from within such ranges of probable estimates - where key inputs may be unobservable." In particular, fair-value accounting and the calculation of credit valuation adjustments showed more variation between and even within firms than was justifiable. "This diversity should trigger auditors to be more skeptical and to challenge management's judgments about modeling approaches and inputs," the FSA added.

In loan-loss provisioning, too, the FSA said it had seen more variation than seemed justified, adding: "Bank auditors should have placed greater importance on the disclosure requirements in 2007 and 2008. This could have mitigated some of the uncertainties that unsettled the markets."

In future, the FSA suggested, it could impose stricter reporting requirements on auditors, including more frequent meetings, higher transparency requirements, and trilateral meetings between auditors, bank audit committees and the FSA. It might also require all regulatory returns to be audited - it noted that the rate of errors is significantly lower in the returns of insurers, for whom this is already a requirement.

EU and US sign SWIFT bank data deal to curb terrorism

An agreement has been made between the European Union (EU) and authorities in the US to allow the sharing of bank data via the SWIFT network as part of a wider anti-terrorism strategy.

The deal, which is still awaiting approval from the European Parliament (EP), will allow financial data to be passed to the Treasury Department in the US to facilitate the tracking and potential prosecution of supposed terrorists.

Subject to EP approval, the agreement will initially last for five years before being renewed on an annual basis.

Michael Dodman, US Embassy's economic officer to the EU, said negotiations behind the agreement had been “very long and intense”.

“It is a very solid agreement and we want it to be applied fully as it is important for the security of the EU and the US,” he explained.

Alfredo Perez Rubalcaba, Spanish minister for home affairs, signed the agreement on behalf of the EU while Mr Dodman represented the US in the agreement. The arrangement has been provisionally drawn up following the rejection of a similar working relationship by the EP in February of this year.

Many of the contentious issues, which concerned privacy and data protection, have been removed from the new deal, the body explained.