How Financial Services Firms Can Prevent SLA Penalties

February 08, 2017 Security and Compliance, MOVEit

For 95 percent of enterprises, one hour of downtime costs $100,000 or more in SLA penalties according to data from ITIC.

If you run a brokerage service, Ecessa reports you'll lose $6.48 million, citing numbers provided by Network Computing, the Meta Group and Contingency Planning Research.

Your website or applications don't have to crash for an entire hour. Just a bit of latency in your network, resulting in a stock trade executed nanoseconds too late, can mean a failure to meet the service-level agreements (SLAs) you made with your customers. Investing in infrastructure and tools like managed file transfer can decrease delays and cut many costs associated with downtime. At least, it's worth saving $6.48 million per hour to give better technology a try.

Lost Revenue and Productivity

Automation has reduced local branch payroll costs while simultaneously making it easy to expand banking through strategically located ATMs. Online banking and mobile banking apps make it simple for customers to transact at any time of the day or night, generating more transaction fees and greater cash flow for banks. When services are unavailable, however, banks lose out on those fees, whether they're generated by commercial banking transactions or investment purchases.

Financial institutions that make short-term investments on behalf of large pension funds or endowments can incur significant losses for clients when their systems are paralyzed. Those losses could negatively impact the overall markets, dealing blows to investor portfolios. Failure to meet SLAs may result not only in SLA penalties but also in a loss of investor confidence.

In fact, downtime can touch the financial markets themselves, as it did in Singapore in 2014. As Netgain CEO Soon Seah Toh explained in a LinkedIn Pulse post, the Singapore Exchange (SGX) was unavailable for three hours in November 2014 when its uninterruptible power supply (UPS) failed following a lightning strike. In addition to facing a Board of Inquiry hearing, the exchange lost an estimated $372 million in trade volume.

Frontline tellers may find themselves busy during an outage, but most financial services employees experience significant drops in productivity. Accompanied by poor data backup or disaster recovery strategies, a little downtime can have effects for months or years to come.

Compliance and Reporting Penalties

Financial institutions are government by regulations, like Sarbanes-Oxley (SOX) and Dodd-Frank, that require complete transparency into a company's financial data. When data is lost because of an outage or application failure, it can skew a company's financial reporting. It can also cause penalties related to inadequate records retention and failure to disclose material financial information.

Related Article: West Corporation Gets High Availability with Managed File Transfer

Four years ago, IT pros at the Royal Bank of Scotland upgraded the batch processing software that processed overnight account updates. The team noticed problems with the upgrade and decided to uninstall it, but the old version of the software wasn't compatible with the new. The failure made it impossible for 12 million Royal Bank of Scotland customers to access their accounts. According to Computer Weekly, the bank incurred penalties of £56 million from both the Financial Conduct Authority and the Prudential Regulation Authority.

Impact on Partners and Customers

When your resources aren't available, or a third party you rely on experiences downtime, your financial institution must meet its SLAs. That's what the Bank of England — the equivalent of America's Federal Reserve — learned on Oct. 9, 2014, when its real-time gross settlement system experienced a nine-hour outage. Transactions couldn't clear its Clearing House Automated Payment System (CHAPS), resulting in delays in transaction processing and even late closes for some financial markets.

Within six months, 36 individuals had contacted the Bank of England asking for redresses related to the outage, which fortunately was mitigated thanks to fast post-outage transaction clearing. Still, with the entire financial system of the U.K. depending on its clearing house, the Bank of England's failure to meet its SLA uptime requirements could have led to significant financial losses for financial institutions, customers and markets all over the world.

Prevent SLA Penalties

When financial institutions fail to meet SLAs, they can incur significant financial losses as well as irreversible reputation damage. Find out more about what you can do to avoid SLA penalties.

Jacqueline Lee