Prof Mak Yuen Teen highlights concerns about DBS leadership amidst series of lapses

SINGAPORE: Mak Yuen Teen, an accounting professor at the National University of Singapore, in a recent LinkedIn post emphasized that both the board and senior management are accountable for the recent service disruptions at DBS, and questioned the methods through which the board would be held accountable.

In an official statement on Wednesday (1st November), Peter Seah, DBS Bank Ltd (DBS Bank) Chairman issued an apology for the bank’s failure to meet the expected standards amidst a series of digital disruptions this year.

He emphasized that senior management would be held accountable, particularly in terms of their “compensation”.

Mr Seah acknowledged the bank’s inability to meet these expectations, recognizing the instances throughout the past year when DBS had not adhered to its own set standards.

“As an acknowledgement that the bank could have done better, senior management will be held accountable, and this will be reflected in their compensation.”

Following the announcement by the Monetary Authority of Singapore (MAS) that it has imposed restrictions on DBS, including a ban on new business acquisitions and non-essential IT changes for six months, Mr Seah made statements addressing the matter.

In addition to the IT changes freeze, MAS has instructed DBS Bank not to decrease the size of its branch and ATM networks to ensure customers have alternative channels during disruptions.

In response to these regulatory measures, DBS said they initiated a comprehensive plan aimed at enhancing technology resiliency.

This plan encompasses both immediate and long-term strategies, focusing on reinforcing technology governance, human resources and leadership, as well as refining systems and processes.

Prof Mak stresses accountability of DBS’s board and senior management

In his LinkedIn post on Thursday, Prof Mak emphasized the accountability of both the board and senior management for the recent service disruptions at DBS.

He highlighted that although the board acknowledged that senior management would be held accountable with implications for their remuneration, the precise mechanisms for holding the board accountable and the resulting impact on senior management’s compensation remain obscure.

To this, Prof Mak asked, “But how will the board be held accountable?”

“What will ultimately be the impact on senior management remuneration and whether this is sufficient to ensure that they have a laser focus on technology resilience remain to be seen,” he added.

Expanding on his viewpoint in the comments section of his post, Prof Mak emphasized that while the board is not directly involved in operational management, it bears the responsibility of ensuring a robust three-line approach to risk management.

“In this case, it seems pretty clear there are major failures in the three lines,” he said.

Concerns arise over timely implementation of improvement recommendations

DBS had disclosed in their official statement that they engaged Accenture, an external consultancy firm, to conduct a root cause investigation following full-day service outage incidents in March and May, with the review’s completion in August.

Subsequently, it was found to align with disruptions in September and October.

“To my knowledge, this is the first time that DBS has disclosed the completion of the Accenture review in August and provided a summary of the key thematic areas for improvement, Accenture’s key recommendations and actions already taken or being undertaken,” Prof Mak said.

He raised concerns about the urgency of implementing the recommendations following earlier incidents.

“For example, it was only yesterday (1 Nov) evening that it laid out its roadmap to improve technology resilience and the appointment of two advisors of the special board committee convened in March 2023 to its newly constituted BRMC Technology Risk Committee, a subcommittee of the BRMC,” he said.

Furthermore, as a DBS customer, he expressed that the prospect of longer-term measures and service reliability assurances when the roadmap concludes may not offer immediate comfort.

While some improvements are structural and will take 12-24 months to implement, the exact timeline for the entire roadmap remains unclear.

“Customers may have to brace themselves for more incidents and long recovery periods for some time yet,” he added.

Additionally, DBS CEO Piyush Gupta mentioned in the official statement that they will be “setting aside a special budget of S$ 80 million to enhance system resiliency.”

However, Prof Mak questions whether this sum is sufficient for a bank of DBS’s magnitude.

“In the context of a bank as large as DBS, it’s an open question as to whether this is anywhere near enough (it’s about 5 times the total FY2022 remuneration of the CEO),” he said.

Considerations on imposing financial penalties to DBS

A business and political intelligence analyst highlighted that financial penalties alone may not suffice, as DBS could potentially transfer the burden to shareholders and customers.

The analyst suggested that significant personnel changes should be considered.

“If people in high leadership positions never have their positions challenged because of organisational screwups that happen on their watch, they won’t feel their feet put to the fire to compel them to actually fix stuff and be hands on about it, ” he said.

Varsha Bipinchandra, a non-executive director and chair of risk committee at FWD Takaful Malaysia and is also a non-executive director at Partner Re Asia Pte Ltd, concurred with the previous comment, acknowledging that the implicit financial penalty comes in the shape of increased capital requirements. She noted, however, that this might be a negligible aspect since the bank already maintains higher than the minimum required capital.

She stressed that considering the substantial impact of the incidents on customers and their recurring nature, financial penalties would have been appropriate and possibly expected.

Meanwhile, a legal expert also concurred that while senior management bears significant responsibility, the board must ultimately take accountability, regardless of their detachment from the operational lapses on the ground.

“It is the pattern of failings that will require a degree of honest soul searching particularly on the culture, ethos and leadership style of the board and management.”

She added that resolving this issue necessitates more than just superficial “improvements on technology and processes”.

Analyst deems MAS’s penalties on DBS “minor” in light of service disruptions impact

In a recent article by CNA on Friday, an analyst highlighted that the retribution imposed on DBS seemed “minor” and not proportionate to the extensive impact of the consecutive service disruptions on Singapore’s largest financial institution.

When asked about the adequacy of the penalties, Assistant Professor of Finance at the National University of Singapore, Ben Charoenwong, emphasized the importance of considering the repercussions faced by customers due to the interruptions.

He pointed out that DBS serves as the primary bank for numerous Singaporeans, some of whom may solely rely on this institution for their banking needs.

“If they are unable to access their funds or process payments, the cost to those users is the foregone economic transactions,” he said. “From that perspective, it seems the (penalties) and additional capital requirements appear to be minor.”