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

Written by Oliver Wade

The Financial Conduct Authority (FCA) has fined Tesco Personal Finance plc (Tesco Bank) £16.4m for failing to exercise due skill, care and diligence in protecting its personal current account holders against a cyber attack that took place in November 2016.

The attackers exploited deficiencies in Tesco Bank’s design of its debit card, its financial crime controls and in its Financial Crime Operations 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.

Commenting on the outcome, FCA executive director of enforcement and market oversight Mark Steward 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 FCA stated that Principle 2 requires a firm to conduct its business with due skill, care and diligence. The bank failed to meet these criteria as it did not apply it to the design and distribution of its credit card, the configuration of specific authentication and fraud detection rules and failed to take appropriate action to prevent the foreseeable risk of fraud.

Furthermore, the authority noted that Tesco Bank did not respond to the November 2016 cyber attack with sufficient rigour, skill or urgency.

However, as the bank provided a high level of cooperation with the FCA, and it implemented a comprehensive redress programme which fully compensated customers, the FCA granted the bank 30% credit for mitigation. In addition, Tesco Bank agreed to an early settlement of this matter which qualified for a 30% (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 just over £33.5m.

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