Navigating Banking Disruptions: Barclays’ IT Outage and Regulatory Lessons for the UK Financial Sector Barclays Outage Outrage: The Regulatory View

Barclays Bank spent most of the weekend grappling with a significant IT outage that left customers unable to access online banking, mobile app services, and critical payment systems since January 31, 2025. The timing couldn’t be worse: the disruption coincides with payday for millions and the deadline for self-assessment tax submissions. While Barclays has apologised and assured customers of a swift resolution, many remain locked out of accounts until Sunday, with reports of declined card transactions and missing funds.

The increased reliance on single points of failure (often as a result of infrastructure consolidation) means that IT problems are often no longer contained within firm boundaries. In the UK regulatory requirements require an enhanced level of resilience planning compared with non-regulated firms, reflecting the critical importance of digital financial services in our day to day world. Despite that, IT failure in an ever complex and interwoven digital space is still likely to occur.

The impact on individuals

The Immediate Impact on Customers

- Payday Paralysis: Thousands of customers faced delays in receiving wages, with some unable to purchase essentials like groceries or baby formula. One news article noted house moves had been impacted. Customers will have had fraught weekends.

- Tax Deadline Pressures: The outage hindered timely payments to HM Revenue & Customs (HMRC), risking ￡100 penalties for late filers.

- Eroded Trust: Social media platforms erupted with frustrations, highlighting concerns over financial accessibility and institutional reliability.

The failure sits at the intersection between very clear rules on operational resilience and those more principles based obligations in relation to good customer outcomes. Even the most robust plan can fail and in those cases what you are likely to have as a regulated firm is a good argument that mitigates any potential regulatory sanction/scrutiny. As ever this assumes you have a clear robust plan, you worked the plan and the problem arose notwithstanding everything was in good order (or at least appeared so).?

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Regulatory Repercussions: Lessons from Past Failures

The UK financial sector has seen repeated IT failures, prompting stricter regulatory oversight. Notable examples include:

1. TSB’s ￡48.65m Fine (2018)

TSB’s botched IT migration left 5.2 million customers without access to banking services for months. The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) fined TSB for inadequate risk management and governance failures. Key takeaways:

- Accountability: The Senior Managers Regime (SMR) now holds executives personally liable for operational risks.

- Operational Resilience: Firms must ensure critical services can withstand severe disruptions, with mandatory testing and contingency plans.

2. 2024’s Payday Meltdown

In June 2024, HSBC, Nationwide, and Virgin Money faced payment delays due to system glitches, underscoring vulnerabilities in third-party dependencies. This incident accelerated reforms, including:

- Third-Party Risk Management: New FCA rules (November 2024) mandate stricter oversight of critical vendors like cloud providers.

- Ring-Fencing: The 2013 Banking Reform Act requires separating retail and investment banking to isolate systemic risk.

3. Global IT Outages (July 2024)

A CrowdStrike update failure disrupted banks globally, including Santander and Lloyds, prompting the Bank of England to prioritise “resolvability” frameworks for orderly crisis management.

The Path Forward: Regulatory Imperatives

The Barclays outage underscores ongoing challenges in the UK’s financial infrastructure:

1. Operational Resilience Deadlines: By March 2025, banks must demonstrate resilience against “severe but plausible” scenarios, including cyberattacks and third-party failures.

2. Transparency and Compensation: Regulators are pushing for clearer customer communication and faster redress mechanisms, as seen in TSB’s ￡32.7m compensation payout.

3. Systemic Risk Mitigation: The Financial Policy Committee (FPC) mandates annual stress tests and higher capital buffers to absorb shocks.

Balancing Innovation with Stability

While digital banking offers convenience, recurring outages reveal fragility in overstretched systems. For Barclays and peers, the path to rebuilding trust lies in:

- Investing in robust IT infrastructure and redundancy protocols.

- Proactively engaging regulators to align with evolving standards like the Critical Third Parties regime.

- Prioritising customer support during disruptions, particularly for vulnerable users.

The UK’s regulatory framework has come a long way since the 2008 crisis, but as ongoing issues, complacency isn’t an option. For the sector, resilience isn’t just a compliance checkbox—it’s a cornerstone of consumer trust.

The current UK growth agenda has seen calls for lighter touch regulation, this lighter touch is unlikely to impact such core regulatory issues as service/operational resilience but weakening requirements around SMCR can have an indirect impact on the importance firms place on core requirements. In the executive suite competing priorities mean that it’s often valuable to have individual execs responsible rather than “share the load” to the point no one individual feels accountable. Whilst Consumer Duty is going nowhere, in fact all commentary from the FCA suggests it will remain key to it’s regulation of firms, the Consumer Duty champion has been offered up to the gods of growth as an early sacrifice.

Other decisions made in the last week highlight the reliance on digital payments, for example a decision not to require traders to have to accept cash. The ongoing acceptance of cash does not only provide a safety net in the event of systemic failures but is also a powerful budgeting tool for those who have to manage their financial position carefully.

Digital banking does offer convenience to customers (who want to use it) and is cost effective for firms. I can imagine this weekend impacted customers were struggling with chatbots, trying to get a human on the phone and suddenly surprised by the lack of branches. If they were lucky enough to get into a branch then the few bank employees on site would have been done their absolute best to help them, limited presumably by the fact that the old counters have long since been replaced by a row of increasingly sophisticated ATM’s.

Outages, whether local firm specific events or wider common source problems like Crowdstrike will continue to occur. Firms need to put as much effort on resilience as they previously have on security. The regulatory environment will expand to try to ensure as much is done as possible is done to avoid problems, Critical Third Party work being a key example in the UK and DORA has recently rolled out across the EU. Nevertheless digital outage is a when not if scenario and whilst already on the FCA agenda for 2025 it's probably a hotter topic as a result of the Barclays issue.

#FCA #PRA #regulation #banking #outage