FCA fines Tesco Bank £16.4m for failures in 2016 cyber attack

The affair saw cyber attackers exploit deficiencies in Tesco Bank’s design of its debit card, its financial crime controls and in its financial crime operations team to carry out the attack.

Those deficiencies left Tesco Bank’s personal current account holders vulnerable to a largely avoidable incident that occurred over 48 hours and which netted the cyber attackers £2.26m.

Mark Steward, executive director of enforcement and market oversight at the FCA, said: “The fine the FCA imposed on Tesco Bank today reflects the fact that the FCA has no tolerance for banks that fail to protect customers from foreseeable risks. In this case, the attack was the subject of a very specific warning that Tesco Bank did not properly address until after the attack started. This was too little, too late. Customers should not have been exposed to the risk at all.

“Banks must ensure that their financial crime systems and the individuals who design and operate them work to substantially reduce the risk of such attacks occurring in the first place. The standard is one of resilience, reducing the risk of a successful cyber attack occurring in the first place, not only reacting to an attack. Subsequently, Tesco Bank has strengthened its controls with the object of preventing this type of incident from being repeated.”

The City watchdog found that Tesco Bank breached its legal obligation to exercise due skill, care and diligence to:

• Design and distribute its debit card.
• Configure specific authentication and fraud detection rules.
• Take appropriate action to prevent the foreseeable risk of fraud.
• Respond to the November 2016 cyber attack with sufficient rigour, skill and urgency.

FCA regulations stipulate that a financial institution’s board is ultimately responsible for ensuring that its cyber crime controls are designed to meet standards of resilience. The board must set an appropriate cyber crime risk appetite and ensure that its institution’s cyber-crime controls are designed to anticipate and reduce the risk of a successful attack. 

Where an attack is successful, the board should ensure that the bank’s response plans are clear, well designed and well-rehearsed and that the bank recovers quickly from the incident.  Following an attack the financial institution should commission a root cause analysis and understand and ameliorate the vulnerabilities that made the institution susceptible to the attack to reduce the risk of future attacks.

Following the attack on Tesco Bank, the FCA said its board immediately put in place a comprehensive redress programme and devoted significant resources to improving the deficiencies that left the bank vulnerable to the attack and instituted a comprehensive review of its financial crime controls.

The regulator also said the bank has since made significant improvements both to enhance its financial crime systems and controls and the skills of the individuals who operate them.

The FCA noted Tesco Bank provided a high level of cooperation to its investigation which, combined with its comprehensive redress programme which fully compensated customers, and in acknowledgement that measures it took stopped a significant percentage of unauthorised transactions, the watchdog granted the bank 30 per cent credit for mitigation. In addition, Tesco Bank agreed to an early settlement of this matter which qualified for a 30 per cent (Stage 1) discount under the FCA’s executive settlement procedure. But for the mitigation credit and the Stage 1 discount, the FCA would have imposed a penalty of £33,562,400.

Gerry Mallon, Tesco Bank’s chief executive, said: “We are very sorry for the impact that this fraud attack had on our customers. Our priority is always the safety and security of our customers’ accounts and we fully accept the FCA’s notice.

“We have significantly enhanced our security measures to ensure that our customers’ accounts have the highest levels of protection. I apologise to our customers for the inconvenience caused in 2016.”