BNY Mellon Payments Processing Outage

by Raymond Pucci 0

Houston…er…New York, we have a problem. Giant clearing and custody bank BNY Mellon experienced anxious moments when an as yet unknown outage hit their payments processing system last Sunday afternoon into Monday, according to the following report.

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. 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.

2016 can’t end fast enough for SWIFT, as it has been in the middle of a number of cyberattacks this past year. Whether the BNY Mellon incident was due to professional hackers probing the bank’s or SWIFT’s vulnerabilities, or simply an IT glitch, remains to be seen. The real cause of the Sunday’s payments failure may never be publicly released. One thing is clear; bank and clearinghouse systems need the highest level of protection. No doubt cybersecurity firms are working overtime to make sure these systems are locked down. This is basically an arms race pitting bank security measures against the increasingly smart fraudsters who will go to where the money is.

Overview by Raymond Pucci, Associate Director, research Service at Mercator Advisory Group

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