Raphaels Bank, one of the UK's oldest lenders, has been fined £1.89m for outsourcing failures which left thousands of customers unable to use their payment cards on Christmas Eve 2015.
The Bank of England and the Financial Conduct Authority (FCA) said Raphaels had failed to properly supervise the companies to which it had outsourced large parts of its operations.
On 24 December 2015, Raphaels' card processor was hit by a technology problem that caused the complete failure of the authorisation and processing services it provided to the bank.
There is no lower standard for outsourced systems and controls and firms are accountable for failures by outsourcing providers"
Over an eight-hour outage, 3367 customers were unable to use their prepaid cards and charge cards. In total, the card processor could not authorise 5356 transactions attempted at the POS, ATMs and online.
"There is no lower standard for outsourced systems and controls and firms are accountable for failures by outsourcing providers," FCA enforcement director Mark Steward said.
More than 3,000 people - many of them seasonal workers who were paid via cards issued by Raphaels - were unable to make a total of 5,356 transactions, made worse because the problem came just before Christmas, regulators said.
Sam Woods, deputy governor for prudential regulation and chief executive officer of the PRA, added: "Firms' ability to manage outsourcing of any critical activities is a vital part of maintaining their safety and soundness. Such outsourcing is an important part of a firm's operational resilience, and particularly so in the case of Raphaels given the level of reliance on outsourcing in its business model.
"In addition, this was a repeat failing which demonstrates a lack of adequate and timely remediation. This is a significant aggravating factor in this case, leading to an uplift in the penalty."
Raphaels Bank received separate fines of £775,100 from the FCA and £1,112,152 from the PRA, the Bank of England's prudential arm.