BNY Mellon Outage Caused Some Swift Payments to Fail -- Update
December 07 2016 - 6:29PM
Dow Jones News
By Katy Burne
Bank of New York Mellon Corp. was unable to process client
payment instructions sent over the Swift network for several hours
earlier this week, a rare outage that caused some payments to fail
and casts a spotlight on operational risks at one of Wall Street's
largest custody and clearing banks.
The incident comes as the bank has drawn scrutiny from
supervisors at the Federal Reserve for its large market share as a
payment and settlements provider.
The outage affecting BNY Mellon and its clients started around
2:30 p.m. EST Sunday and was resolved by 9:51 a.m. Monday,
according to a memo obtained by The Wall Street Journal that was
dispatched by the bank to its clients late Tuesday.
The incident affected institutions that routinely tell BNY
Mellon to make hundreds of billions of dollars of payments on their
behalf by sending messages over Swift, or the Society for Worldwide
Interbank Financial Telecommunication, a funds-transfer
network.
During the window when its technology systems were affected, BNY
couldn't process those payments on time. It took BNY until Monday
afternoon to catch up, and the matter is being scrutinized inside
the bank because some payments failed to meet their cutoff times
and had to be completed Tuesday instead.
Cheryl Krauss, a BNY spokeswoman, said the bank became aware of
an issue that "impacted our ability to send messaging to and from
the Swift network." She said the bank's systems are now fully
functional and additional real-time backup systems have been
established to help reduce the risk of any future disruptions.
When the bank first became aware of the problem, its Swift
processing was slowing and the bank eventually lost connectivity to
Swift, the BNY memo said. Once the bank discovered the issue, a
technology vendor helped the bank to get the system back up and
running, but those initial attempts were unsuccessful, according to
the memo.
Not all of BNY's customers were affected, because some use
alternatives to Swift. The ones who were affected mostly waited for
BNY to fix the problem, instead of resorting to contingency plans,
said people familiar with the episode.
Eventually, the traffic was redirected to another system so the
team could process the instructions and start to clear the backlog.
Teams lent special assistance to clients who had been forced to
"allow for alternative methods of instruction," the memo said.
As a result of the delays, BNY requested an extension in the
Federal Reserve's payments-clearing system, known as Fedwire, the
people added. Such extensions are sometimes allowed, particularly
for banks processing large volumes of payments.
Darren Gersh, a Fed spokesman, declined to comment on the
technology disruptions at the bank. The U.S. central bank oversees
the bank and monitors its systems.
The root cause of the outage couldn't immediately be identified
by BNY, but the people familiar with the matter said it appeared to
be a technological issue inside the bank's platforms that take
Swift messages and allocate the instructions to different business
units, a person familiar with the matter said.
In June, the Fed approved capital plans for BNY as part of the
regulator's annual checkup on the health of financial institutions,
called "stress tests." The central bank found that the bank could
weather a severe hypothetical downturn in economic conditions, and
the test included projections of operational risks at the firm.
In an Oct. 14 report on the stress tests, BNY management wrote,
"We recognize the pivotal role that we play in the financial system
with respect to payment, clearing and settlement activities, and
that it is incumbent on us to ensure the continuation of our
services in the event the firm encounters stress."
The Fed worried as far back as 2006 that one of BNY's businesses
had too large a role in payments and settlements, and considered
forming a utility as a backup. J.P. Morgan Chase & Co.'s
announcement this summer that it will exit the business of settling
U.S. Treasury bond trades resurfaced some of those concerns.
Today, BNY operates custody services, manages portfolios of
assets for clients, and offers clearing and settlement services to
clients in 35 countries.
The incident involving Swift comes as regulators have stepped up
scrutiny of the network operator, which has been hit by a string of
cyberattacks in recent months. In August, the Fed, the Office of
the Comptroller of the Currency and the Federal Deposit Insurance
Corp. told their banking examiners to look more closely at the
security of banks' links to Swift.
A Swift spokeswoman, declined to comment on the BNY episode,
saying, "We never comment on individual entities."
Write to Katy Burne at katy.burne@wsj.com
(END) Dow Jones Newswires
December 07, 2016 18:14 ET (23:14 GMT)
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