Lender fined £1.2m by PRA

R. Raphael & Sons PLC (Raphaels) has been fined £1,278,165 by the Prudential Regulation Authority (PRA) for failing to properly manage its outsourcing arrangements.

The PRA said the failure had potentially put the safety and soundness of the UK-based bank at risk.

In September 2006, Raphaels entered into a joint venture with Company C, another firm in its parent’s group, to provide automated telling machines (ATMs) across the UK.

However, it failed to enter appropriately into suitable written agreements or undertake suitable due diligence around the outsourcing.

Between 2007 and 2014, employees at Company C, who were responsible for managing the outsourced functions, improperly transferred funds from Raphaels to deal with its cashflow problems, but without the knowledge or consent of Raphaels.

The employees also took steps to conceal their actions.

The PRA said these breaches meant that Raphaels had inadequate oversight and control of its regulatory capital position and the arrangement left it with an exposure of more than 25% of its capital resources.

Andrew Bailey, Deputy Governor for Prudential Regulation and CEO of the PRA, said: “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.”

Raphaels would have been fined £1,825,950 if it weren’t for the 30% discount after agreeing to settle at an early stage in the investigation.