The Reserve Bank is working on a set of principles to ensure local banks' customers and their information stay safe in the event of the collapse of an overseas IT outsourcer, parent bank or service organisation.
It appears to be influencing banks to bring New Zealand processing back home without actually requiring it.
The Reserve Bank is not opposed to New Zealand banks outsourcing IT overseas, spokesman Mike Hannah says, and it will not tell the country’s banks what to do and what not to do when outsourcing, “but we want to ensure the legal and practical ability to keep the essential functions of a bank running in the event of stress”. Stress means financial or operational collapse or severe difficulty, he explains.
As the “outcome-focused” principles are being drafted, the ANZ Bank is finally putting into place a consolidation that it has been considering for years. All processing done for New Zealand customers in Australia is being shifted to one computer, a move that was scheduled to take place last weekend. Previously this business was distributed across a number of machines.
This is theoretically in preparation for moving processing back to New Zealand later this year, with Labour Weekend identified as a likely timeframe. ANZ sources, however, say the latter move may not eventually take place; the offshore consolidation may be considered enough to meet Reserve Bank requirements.
Earlier this month the Australian Financial Review reported that “ANZ is required [by the Reserve Bank] to relocate all computer systems servicing its operation across the Tasman to New Zealand by December 31.” This is not strictly true, Hannah says, and the newspaper has been asked to correct the story.
Asked whether the Reserve Bank would be happy with some of ANZ's New Zealand customers' information being held in Australia, Hannah is unwilling to be that definite. Much depends on the terms of the still-developing agreement and particularly the legal problems that can result from systems straddling two jurisdictions, he says.
At the time of the ANZ–National Bank merger, the bank "chose as part of the fulfilment of its conditions of registration to bring back the IT work dealing with its NZ retail business which it had shipped to Australia," Hannah says.
ANZ spokesman Robert Reid says a move is definitely planned. "ANZ National Bank is bringing core processing systems back to New Zealand by the end of 2005 — under our agreement with the Reserve Bank," he says, despite the Reserve Bank saying it is not dictating such a move.
"That process is being completed in stages and is on track," Reid says. "For operational reasons, we are not in a position to comment in more detail about the process."
A final form of the outsourcing safety principles is still “probably a month away”, says Hannah. While their drafting is a joint exercise with the banks, there will be another round of consultation after the principles are finalised to ensure all banks agree with them. “So I can’t say when we’re likely to get agreement,” he says.
The Financial Review also said “questions remain about National Australia Bank’s compliance with the Reserve Bank’s desire to quarantine its banking system, given it operates some data warehousing for its New Zealand [BNZ] operations in the Melbourne suburb of Knox.”
Reid, however, says the Reserve Bank has not specifically told NAB to quarantine any part of its IT operation.
An NAB spokeswoman declined to comment while the code is under development.
Last year, the Reserve Bank persuaded Westpac NZ to cancel an outsourcing move involving IBM Global Services Australia because it was “inconsistent with the bank’s stand-alone capability requirements", the Reserve Bank said in a written response to Computerworld inquiries (Computerworld, October 25, 2004). The move was said to have cost the bank at least $2 million.
As Westpac stands today, "it's business as usual until a formal outsourcing policy is put in place," says spokesman Ian Bonnar.