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Thursday 22 August 2019


PRA fines Raphaels for outsourcing failure

Written by Michelle Stevens

The Prudential Regulation Authority (PRA) has fined Raphaels Bank £1,278,165 for “potentially putting its safety and soundness at risk” by failing to properly manage an outsourcing arrangement.

The case centres on an outsourcing deal regarding the bank’s ATM provision. By April 2014, Raphaels owned 334 fixed ATMs in addition to mobile ATMs that were used at major events. In September 2006, Raphaels agreed to enter into a joint venture with another company in its parent group (Company C) to provide ATMs in various locations around the UK. Raphaels outsourced its ATM finance function to a team within Company C, but the PRA said that the bank had failed to execute controls, secure suitable written agreements or carry out full due diligence.

From 2007 to 2014, Company C employees improperly transferred funds without the knowledge or consent of Raphaels, and took steps to conceal their actions. The funds from Raphaels were then used to deal with cash flow problems in Company C. Raphaels’ exposure to Company C would have led to severe financial repercussions if Company C had become insolvent, the regulator warned.

As a result of the failings around its outsourcing, these breaches meant that Raphaels had inadequate oversight and control over its regulatory capital position, said the PRA. It levied a financial penalty of £1,825,950 – reduced by 30 per cent to £1,278,165, as Raphaels agreed to settle at an early stage of the PRA’s investigation.

Andrew Bailey, deputy governor for prudential regulation and CEO of the PRA, explained: “You can delegate or outsource work but you cannot delegate or outsource responsibility. Raphaels put its safety and soundness at risk by failing to have adequate controls in place over their outsourcing. The lack of controls meant that Raphaels did not know what its capital position was or who it was exposed to. This behaviour could have had severe consequences for Raphaels which is why the PRA has taken the relatively unusual step of levying a fine in this case.”

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