Challenges Facing the Royal Bank of Scotland - Essay Example

Analysis of Royal Bank of Scotlands (UK) challenges over the past few months By [Journalism, Mass media and Communication] ofUniversity] [Date] “Challenges facing RBS” Introduction The Royal Bank of Scotland Group plc is also called RBS Group. It is based in Edinburgh UK. RBS is a British banking and insurance holding institution, which offers numerous services which personal banking, insurance, private banking and corporate finance, disbursement of mortgages and investments analysis. This essay seeks to conceptualize and examine the challenges that have faced the bank in the past months. In-depth examination on the bank’s brand shall be examined. As a point of departure, the bank’s challenge is closely attributed to the local and international financial crises that have engulfed numerous nations in the recent past. For instance, nation such as the US, Italy and Greece are the recent countries to have undergo a staid economic crisis with that of the US compelling closure of state governments. Most of the RBS challenges are associated with financial market trends, the ever-dynamic technological trends and market competition. This brings us to the analysis of the challenges Analysis of the challenges facing RBS The RBS challenges concentrate on the following areas Financial frauds: The bank has been involved in financial frauds, which include marketing rigging of interest rates and intentional misleading information concerning rights issues. Technology: Emerging banking technologies enable banks to offer better services that are convenient in terms of reducing operation costs, increasing data security as well as enabling a great consumer experience. However, the adaptation to emerging banking technologies is at times challenging to the banks since it requires greater need for investments. Data and cyber security: Emerging banking technologies also seek to cater for the privacy and confidentiality of customer information that is exchanged while a consumer conducts their operations and/ or transactions online or when they share their information with the bank. As such, banking institutions are faced with the need to keep on updating their cyber security systems to ensure the privacy and confidentially of consumer data and information (PWC. (N.d.)). Challenges that the Royal Bank of Scotland Group (RBS) in the UK faced $6 million fine over market rigging RBS is compelled to pay a fine of $600 after investigation indicated that it collaborated with other banks such as Deutsche Bank and Citgroup among others for rigging financial benchmarks. Financial benchmark rigging refers to the manipulation of the interest rates by big players in the industry for financial gains. According the investigation, RBS played an active role and was required to pay $600 million as fine. This is a big financial setback since it slowed the operations of the bank due to the reduced capital reserves. The bank did not find any explanation to offer to the public over the claims of Libor manipulation as alleged by one of the employees and the consequent court ruling (ROYAL BANK OF SCOTLAND, 2014). However, the top management executive admitted to the claims and agreed to pay the fine. £4 billion lawsuit Two lawsuits against RBS over shareholders’ misleading expectations over the 2008 rights issues is likely to cause the RBS over £4 billion in compensation. The shareholders and top investors of the banks, which include legal, & General and Standard Life claim that the bank mislead them over the massive rights issue call in 2008. The bank claimed back more than £1 billion pounds. It is imperative to note that, if the lawsuits go through the back will be compelled to repay a compensation of over £4 billion. This is not only a setback to such a big financial corporation but also a negative image to the public. This created mistrust among the clients and the public. This may be immensely attributed to the end collapse of the bank, which saw the state take it up. Technological challenges The banking sector in the UK like any other country has undergone considerable technological changes over the past 25 years and the trend continues due to the ever-dynamic consumer banking needs. The changes are always in tandem with the growing rate of globalization and modernization. The technological change has included the growth of the use of telephone application in banking systems particularly the internet-based banking, which has continually enhanced the non-cash payments. The difficulties of technological operations occur because of the vigorous and extensive process of incorporating emerging technologies into the present banking. It is imperative to note that the process of building the infrastructure is expensive and time consuming. For example in 2013, the bank spent approximately £1billon in their efforts to upgrade from their existing banking systems after they underwent an IT failure, which highly affected their customers who were not able to access their money. According to the BBC (2013), the ICT failure that RBS Group underwent affected almost 750,000 customers. The services that were hampered by the system failure included inaccessibility of the client’s debit cards from the various ATM points, making of online payments as well as checking of balances. In addition, the bank spent approximately £700M in 142 different branches to ensure that the computer problem issue would not reoccur (TELEGRAPH, 2013). It is notable that most banks across the globe experience such IT systems failures; however, apt measures in correcting the situations warrant the customers the aspects of reliability. For instance, the Co-operative Bank had spent close to £330M to engage in a project that involved construction of a new banking system infrastructure. Moreover, they also mentioned that they would spend £500M more for banking system projects in the coming years (TELEGRAPH, 2013). When compared to RBS, which is far much bigger than the Co-operative Bank, it can be revealed that the bank will definitely have to spend much more investments with regard to ICT banking projects. The Payment protection insurance (PPI) Scandal The mis-sold payment protection insurance (PPI) allegations continue to haunt RBS. The recent RBS announcement that the PPI could cost an additional £400 million bringing the total to a sum of £1.7 billion is a set back to the bank’s endeavours to come up from its knees. This is a big challenge to the new Chief Executive Ross MacEwan because he has to invest many billions in the past scandals. The new CEO assures the public that dealing with the past scandals will give the bank humble time to come to track (FERRAN, 2012). The MacEwan wants to scale down the banks’ operations to the local level to reduce the level of international risks. The CEO assure the public that, within the next 3-5 years the bank will be on its feet and calls for patience. The collapse of RBS Several events, which included the disastrous and ill-timed takeover of the ABN Dutch-based bank, PPI scandal, the fines attributed to the interest rate manipulation and misrepresentation of the rights issue among other uniformed decisions made by the bank’s directors saw the bank come down to its knees (ROYAL BANK OF SCOTLAND, 2014). This situation necessitated the state takeover through a £ 20 billion injection. This move was intended to stabile the bank, however, the current CEO MacEwan predicts that despite the government’s efforts, the bank might take up to 5 years to stand on its feet. Until then, the banks might not allow the sale of the government stake. The effects of RBS Group challenges Cutting down of over 30,000 jobs Numerous consequences are attributed to the challenges that faced RBS. For instance, the payment of fines because of market rigging, PPI scandal and provision of misleading information as pertains to rights issue, have pushed the bank to a continuous financial crisis which has seen its top management resolve in job cutting (GOFF AND ARNOLD, 2014). This move is aimed at cutting down the operating expenditure and ensuring that the bank continues to carry out its intended objectives amid the local and internal challenges. The cutting down process involves the selling of the U.S and UK retail business Citizens. The bank is doing all it can to improve its capital position and financial strength. Recommendations for the challenges of the Royal Bank of Scotland’s (UK) According to the UK survey that was conducted and published by the British Computer Society (BCS), revealed that only three (3) out of a total number of 500 developmental IT projects passed the success criteria while the rest failed (JACQUART, 2004; RAE, 2004; BCS, 2000). Comparing this aspect with what happened in RBS (UK), it is established that the IT issues that RBS were undergoing is a common phenomenon in the banking technologies and usage. However, the primary cause of concern is that RBS Bank did not have an immediate strategy to curb the IT hitch. It took hours and in some areas, it took a day for the bank to recover their systems. Apparently, this duration was termed as “cyber Monday” crisis as it affected bank systems on the day when business was always at its maximum (TELEGRAPH, 2013). It is observable that the banks need to be more prepared for failures during the banking systems’ implementation processes to avoid unnecessary stoppage of client’s operations. For the case of RBS (UK), they should have ensured that before the incorporation of a primary banking system, alternative backups are put at standby to ensure immediate recovery of the system data and operations. On the same note, the strategic contingency plans should have been described while the banking system was being implemented. Similarly, they would have defined a good support system in the event that their systems would go down and remain dormant for some time. This would have prevented their customers from having a negative perspective of how they handled their issues. The bank’s management defended their move of changing the IT system by encouraging the clients that the move would improve service delivery (BBC, 2013). The management assured clients that all will be well and normalcy will return as their technicians were working on the hitch (ROYAL BANK OF SCOTLAND, 2014). This statement can be seen as part of the public relations effort to make the clients and the public aware of the bank’s efforts in resolving the IT problem at hand. However, the eventual closure of the bank relative to negative publicity and inefficient management, tells us that the efforts made to sustain better public relations between the bank and the clients did not work to meet the intended objectives of keeping the clients at bay. While the bank’s management continued with corrupt deals and laxity in maintaining and sustaining high standards of service delivery, the clients had started shifting mind to other financial institutions with stable operating machinery and apt management. On the case of market rigging and consequent fining, that amounted to $600 million and other scandals such misrepresentation of information relative to the rights issues, the bank would not redeem its image, however much it applies its public relations strategy. This is because some of these scandals are apparent and intentional. It is recommendable that the bank’s top management owns up to the hitches and mistakes committed intentionally (ROYAL BANK OF SCOTLAND, 2014). Then the bank should arrange to make compensation out of court to avoid tainting the corporation’s image. It is in order for the bank’s management to be honest to itself and the clients’ base. Defence mechanism on intentional actions may not serve the expectations of the clients. On equal measure, cases of interest rate manipulation through conspiracy amongst the top banks should be avoided. RBS should embrace genuine and honest operations. This is fundamental in protecting its integrity and restoring the clients’ confidence. This will go a long way to sustaining the already attained market niche and attracting other clients (ROYAL BANK OF SCOTLAND, 2014). Moreover, the issues related to takeovers of immense magnitude the banks should make wide consultations and risk assessment to avoid rush in decision-making. With the failure to consult when making the ABN takeover, the consequences are ripe even at present. A lot of money was overspent without necessary risk measures. It is of immense benefit if the bank’s top executive management consults widely before making decisions. In essence, informed decisions that pertains the financial position and any intended spending should be made after a thorough and informed risk assessment to avoid taking up projects that eventually come to manifest than bank’s ineffectiveness in making viable decisions (ROYAL BANK OF SCOTLAND, 2014). The concept of reputation management at RBS The top management of RBS having known the ideals and effects of negative reputation, they moved quickly to suppress the media and other press news that attributed to the technological failure that saw clients question the ability of the bank to handle emergencies. Following this incident and others such as the PP1 scandal the banks top management moved swiftly to curb reputation damage, particularly on the social media. The management assured its clients and the general public that all systems were on repair process and all processes will return to normally without any issue to the client’s financial databases. Generally, RBS worked hard through its both distributive channels and online advertisements to convince their clients that the corporation’s management was doing everything at its disposal to ensure a smooth running of the company’s operations (KPMG, 2013). The aspect of reputation management is a fundamental element in sustaining the market niche and this follows that, the governor of the bank of England sir Mervyn King had to call for the Financial Services Authority (FSA) to carry out a thorough and urgent investigation into the bank meltdown. This is a move to appease the clients and the public that the cause of the mess will be established and corrected. In addition, the Chief Executive officer of RBS, Stephen Hester offered a satisfactory explanation and apology to the clients and the public. Conclusion In conclusion, the bank’s primary challenges involved change of upgrading its IT systems. This process was not only expensive but also a frustration to the client-based operations during the implementation period. In addition, issues of lending rates, coherency and bank statement strength played part in the slow operationalization of RBS. There are a number of solutions, which were out in place based on these issues. For example, for the case of the failure of their IT systems, it was determined that a number of back up strategies should be put in place to take up immediately or soon after the event occurred. It is important to note that, IT system’s failure do occur in banks, however, it is critical for banks to take the initiative of having an immediate plan that would be implemented in the event that the issue occurred to avoid hitches such as the lack of access to accounts and money for RBS (UK) customers. On equal measure, the issue relating to financial crisis is one that banks cannot avoid. Despite such scenarios, a number of measures such as cash retention as well as increase in investment ratio are strategies that banks – more specifically RBS (UK) could incorporate to retain more cash and be in a position recover from their expenses. However, most important of the solutions is the ability of the corporation’s management to apply its public relations techniques to ensure that the customer base received the correct information and the way forward in resolving the bank’s issues. For example, during the banks’ ICT meltdown, the governor of the bank of England sir Mervyn King had to call for the Financial Services Authority (FSA) to carry out a thorough investigation into the bank meltdown. This is a move to appease the clients and the public that the cause of the mess will be established and corrected. In addition, the Chief Executive officer of RBS, Stephen Hester offered a satisfactory explanation and apology to the clients and the public. It is imperative to note that, the public relations and reputation management has helped RBS to remain firm in terms of market niche sustenance even during crises. It is a powerful instrument of management. Works cited JACQUART, R. (2004). Building the Information Society. 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