A ‘proportionate’ penalty  ... cOntInues

The central bank said in a press release that the incident has revealed “weaknesses in DBS’ technology and operational risk management controls”.

MAS said DBS was partly at fault because of inadequate oversight of how its systems, which were outsourced to IBM, were maintained.

Besides the censure, MAS set out eight measures for the bank to adopt.

Among these, DBS has to diversify and reduce outsourcing risks “so that it does not overly rely on a single service provider”.

DBS must also review its outsourcing vendors’ maintenance processes to ensure their technicians have the requisite level of skill, capability and experience. MAS deputy managing director (financial supervision) Teo Swee Lian 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 systems and infrastructure, whether outsourced or in-house.”

Mr Andrew Sotiropoulos, who is IBM’s Asia Pacific general manager for global technology services, blames the outage squarely on “human error”.

One of IBM’s field engineers and a support centre worker had repeatedly failed to follow the correct procedures during the routine repair job, he said at a joint press conference with DBS.

The pair have been disciplined and removed from direct customer support activity.

As to whether IBM’s existing contracts with DBS would be affected or if compensation was being sought, Mr Gupta said the focus is on “remedial action”.

Since last year, DBS had begun enhancing its system reliability and resilience. That process will now be accelerated, Mr Gupta assured.

Mr David Gledhill, managing director and head of DBS technology and operations, said the bank would “refresh” its existing systems to minimise glitches. Staff will go for weekly technology forums to stay abreast of proper processes.

MAS also directed DBS to “improve its customer communication process and ensure timely communication with stakeholders with immediate effect”.

To that end, DBS said it will also improve its monitoring tools so there can be earlier alerts about possible failures.

A ‘proportionate’ penalty for DBS

MAS opts not to impose financial penalties

Teo Xuanwei

xuanwei@mediacorp.com.sg

SINGAPORE

Yesterday, the Monetary Authority of Singapore (MAS) opted for a third — and what the regulator described as “proportionate” — tool at its disposal when it asked DBS to set aside an additional $230 million to cover operational risks, following the system outage that crippled the bank’s teller machines, credit card and online banking services for seven hours on July 5.

In reply to MediaCorp’s queries, including why it decided against fining the bank, MAS said: “Banks are subject to financial penalties, regulatory sanctions, supervisory actions or reprimands if they fail to meet MAS regulatory or supervisory requirements. MAS believes the regulatory actions taken against DBS are proportionate to the nature, severity and impact of the incident.”

MAS’ “supervisory action” came with a censure, which DBS chief executive officer Piyush Gupta accepted. He also assured customers that even with the additional provision, DBS has enough capital to set aside — “comfortably above the required levels”.

Following the requirement, DBS’ total capital adequacy ratio will fall by 0.2 percentage points to 16.3 per cent. In Singapore, MAS sets a minimum adequacy ratio of 10 per cent.— It could have imposed financial penalties or enforced sanctions against DBS Bank to deal with the first case here of a bank failing to observe the Internet banking and technology risk management guidelines.

MERiTOCRACY

wInner  tAkes  All

UOB

The  BEST

Pros and cons having only 2 banks.

Good:

1) Government easy to control the bank holders' a/cs .   Is the one way to curb  Terrorists' activities.

Bad :

1) people has lesser choice to  make comparisons of interest rates or choose their loan packages. They will resort to borrowing from Foreign banks.

Sony’s issues are Japan’s, too

today Tuesday August 3, 2010 16

And not a moment too soon, considering how Apple and Samsung now dominate an industry Sony owned before it flirted with zombie status.

Sony’s return to profit in the first quarter would seem to have broader significance.

Many in Tokyo say that as Sony goes, so goes Japan Inc.

That’s where things get dicey. There are three reasons not to get too excited here:

1) A weakening global economy, 2) a strong yen, and 3) Sony’s reluctance to change.

The global slump is a big challenge for a company that generates more than 70 per cent of revenue outside Japan. It’s a concern, too, for a highly-developed economy that still puts manufacturing ahead of everything else. Some economists, such as Paul Krugman, are even predicting a depression.

Something is afoot in Japan that explains why the central bank is getting so little traction with near-zero interest rates.

This so-called Liquidity Trap that plagues Japan, Krugman wrote in a blog posting last Thursday, is becoming a global phenomenon.

The latest sign that Japan’s monetary wheels are stuck in the mud comes from the Tokyo interbank offered rate, or Tibor.

The rate that helps determine costs for about ¥137 trillion ($2.14 trillion) in domestic lending suggests banks are setting benchmark rates at about double what they charge each other for short-term loans.

This is really a low-grade scandal. No clear villains, exactly, but some banks are rigging interbank rates to generate better spreads. What’s good for their quarterly earnings statement is bad for the economy.

Officials at the United States Federal Reserve would be wise to track the Bank of Japan’s chronic inability to turn liquidity into fresh lending.

# Are  SiNGAPORE BANKS in sImIlIar  predIcament ? #

Sony’s slew of new products, be it 3D television or motion-sensing controllers for its game platforms, don’t trump a worsening economy. Factory output dropped 1.5 per cent in June, while the jobless rate climbed for a fourth straight month to 5.3 per cent, figures showed last week.

That gets us to the yen. Given Sony’s global exposure, it loses about ¥7 billion of annual operating profit for every ¥1 decline in the value of the euro and ¥2 billion for every ¥1 the US dollar weakens. Late last week, the yen strengthened against all of the 16 most-active currencies and reached its highest level this year versus the US dollar.

# SAME  as  SINGAPORE's  STRONG EXCHANGE RATE and near ZERO iNTEREST RATE  pOlIcy ? #

Not a good scenario for Sony, or Japan in general. Japan has avoided large-scale government intervention to weaken the yen since 2004. Given Prime Minister Naoto Kan’s slumping approval ratings, it wouldn’t be surprising to see the Finance Ministry spring into action.Sony’s funk may be ending. Five years of shaking up the Japanese bellwether are beginning to pay off for chief executive officer Howard Stringer.

WHITHER  INNOVATION?

Stringer’s biggest weakness is innovation. Sony makes lots of decent stuff that everyone else makes.

Unless you are a video-game enthusiast, Sony hasn’t come out with a must-have product in many years. Every time Apple introduces a new game-changer, Japanese investors are left wondering what has become of the creator of the Walkman. Sony has gone from being the one and only to just one of many.

Since taking the helm in June 2005, Stringer has failed to marry Sony’s vast entertainment content with its hardware.

In February 2008, I even argued that Apple CEO Steve Jobs should just buy Sony. Apple needs music and movies to sell to iPod, iPad and iPhone users; Sony has it in spades.

Such a deal would happen over the dead bodies of many Japanese shareholders. And yet a surge of fresh innovation is needed for Sony to thrive. Firing thousands of workers and shutting factories will only get Sony so far.

It appears reluctant to make the huge changes that stand between it and steady profits.

At times, Stringer has displayed an impressive understanding of what ails Sony.

Take company culture. He put the staff of Sony’s game units in the same building with everyone else in central Tokyo to increase cooperation. The move raised eyebrows.

More such moves are needed to make the company relevant.

The urgency to do that is increasing as major economies slow anew. Krugman’s depression concerns are the talk of markets in Japan, and many policy makers are mentioning them in private. Krugman’s narrative about developed nations following Japan into a liquidity crisis is, perhaps, influencing decisions more than the views of his peers.

That phenomenon will boomerang back on executives in Tokyo.

Corporate Japan remains maddeningly stubborn about sticking with its post-war business model, the anchor of which is exports. As US growth slows and Europe’s troubles deepen, Japanese companies can expect less demand for their wares.

All the high-fiving going on in Tokyo over Sony’s profit outlook ignores the dreadful state of the global economy. It glazes over how much more needs to be done to resurrect Sony’s greatness. Japan’s, too. 

BLOOMBERG

William Pesek is a Bloomberg News columnist. The opinions expressed are his own.

Willi am Pesek