BBA The voice of banking Tue, 22 Jul 2014 17:10:01 +0000 en-US hourly 1 BBA Annual Banking Conference Tue, 22 Jul 2014 15:17:16 +0000 0 An industry on the cusp of turning a corner Tue, 22 Jul 2014 14:59:15 +0000 Read More]]> Accenture’s latest Point of View on the UK bank customer launched this week focuses on how banks can win what we refer to as “the race for relevance”. This paper, based on responses from 3,604 UK current account customers has been published just over a month after my last blog for the BBA, in which I described some of the trends I expected to emerge from our study. I am delighted to be invited back now to see where we landed, and to look at some of the stories that emerged in our final report.

Turning a corner…

Back in June I outlined what I expected to be a mixed bag of results this year. The consistent patterns of apathy we had seen reflected year-after-year in satisfaction, advocacy and purchase activity needed to be balanced against the positive uplift I thought would come as a result of an entrenched UK economic recovery.

As the charts below illustrate, satisfaction, advocacy and purchase activity all continued to hover, with less than a 1% change in each dimension. But there have been some encouraging signs as well. Notably, the intent of customers both to buy products from their banks, and advocate for them in the year ahead rose sharply in 2014. As account switching becomes better known, the numbers of complaints reported by our survey respondents have fallen faster due to an increasingly positive perception of banks – as more trustworthy, ethical, and fair and transparent. This points to an industry on the cusp of turning a corner.


Changing channels, changing priorities…

Elsewhere, we found evolving patterns of interaction, as the channel choices of retail customers became more complex. As the charts below show, internet banking continued to dominate, with 80% of UK bank customers flipping open their laptop every month to transact online. With the plateau observed in 2011 and 2012 recurring once more in 2014, it would seem that online banking has truly reached saturation point.


It is in the growth area of mobile banking that we saw yet another significant jump in 2014. More than one-in-four of us are now banking on-the-go, trading clicks for swipes as the availability of mobile devices, digital banking apps and cheap data continue to change the way we bank.

Interestingly, we also saw growth in the number of monthly visits by customers to branches – jumping 7% in 2014. But the fact that more than half of us are now making monthly branch visits does not presage a nostalgic dash for the days of “analogue” banking. Look at what customers actually do in branches and you’ll find further evidence of the digital banking revolution in full swing.

A large proportion of customers interact through self-serve channels, using the branch as a service hub. In this context, the new branch service models and investments in smart ATM technologies we are seeing right now make perfect sense. New innovations, such as mobile cheque deposit, will see an increasing proportion of this self-serve branch activity move to mobile, changing the purpose of branches still further.

With around one-in-four branch customers engaging in what we refer to as “value-added” interactions in branches – buying products, setting up payments, getting information on products and services – the opportunity to connect face-to-face and build relationships endures. The challenge for banks is to make the most of these physical interactions, bringing the best of what they are delivering through digital to provide more seamless, rewarding and relevant services that customers will truly value.

A question of re-engagement…

Yet, beyond straight forward execution, banks must also supply customers with new and more compelling reasons to sit up and take notice.

Customers feel more positively towards their banks, but banks will struggle to convert good intentions into revenue generating actions in the years ahead unless they can re-engage customers, who rate factors such as “cost”, “transparency” and “flexibility” well ahead of “brand”, “innovation” or “good advice”. Customers are exhibiting deeper levels of engagement with the products and services that banks sell than with the brands they bank with. This is important. Leaving the prioritisation of product over relationship unchecked could ultimately relegate banks to the status of financial utility providers.

To re-engage customers, banks must deliver relevant and differentiated products that customers really want. They do so through a compelling blend of channels that their customers will really want to use.

Our report highlights five steps for success:

  1. Focus on customer experience think simple, low-friction
  2. Extend the digital experiencemake interactions engaging and personal
  3. Rise to the ‘in-branch challenge’new formats, digitally-enabled features
  4. Review and question your ‘digital proposition’ensure services always reflect the real needs of your customers
  5. Apply an active retention strategyuse analytics and ‘big data’ to manage life stages and reward loyalty.

The ability of banks to re-engage customers and capitalise on the positive trends seen in this year’s study will depend on their ability to generate one overriding asset – relevance. With half-year reporting season nearly upon us, I for one will be watching the announcements from the big UK banks around their customer strategies with interest.

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MiFID II BBA – Second draft consultation and discussion paper responses from AFME Tue, 22 Jul 2014 14:36:28 +0000 Read More]]> The BBA has now received further draft responses to the MiFIR/ MiFID II Consultation and Discussion Paper from AFME.

MiFIR / MiFID II – AFME Draft discussion and consultation paper responses -  AFME have provided their second draft response to the following items which can be found at the following link:

  1. Investor Protection – Consultation and Discussion paper drafts
  2. Transparency – Consultation and Discussion paper drafts
  3. Micro Structural Issues – Consultation and Discussion paper drafts
  4. Data Publication – Consultation and Discussion paper drafts
  5. Requirements applying on and to trading venues – Consultation and Discussion paper drafts
  6. Market Data Reporting – Discussion paper draft

Please contact Francesco Angelini ( should you have any queries on these responses.

CP 2 Investor Protection v2 Response
CP 3 Transparency Response
CP 4 Data Publication Response
CP 5 Micro-Structural Issues Response
CP 6 Requirements Applying on and to trading venues Response
DP 2 Investor Protection Response
DP 3 Transparency Response
DP 4 Microstructural Issues Response
DP 6 Requirements applying on and to trading venues Response

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EBF responds to ESAs Consultation Paper on OTC derivative risk techniques Tue, 22 Jul 2014 14:21:41 +0000 Read More]]> On the 14 July the European Banking Federation (EBF) responded to the ESAs consultation paper on Risk Mitigation techniques for OTC Derivative Contracts not cleared by a CCP.  As a member of the EBF, the BBA worked with both the EBF and its other European partners in formulating a response.

Please read the full response via the link below.

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BBA Brief – 22 July 2014 Tue, 22 Jul 2014 09:22:16 +0000 Read More]]> PPI complaints halve as FOS claims “worst is over”

The number of new complaints relating to mis-sold payment protection insurance (PPI) by the Financial Ombudsman Service (FOS) declined by 57% in the past three months, reports the Times (£, p32). The FOS received 56,869 complaints between April and June 2014, compared to 132,152 in the same period last year. Complaints during the first six months of 2014 stood at 85,184 – down from 160,000 over the same period last year. The ombudsman said that they were seeing a change in the nature of grievances towards more complex cases.

US Money Market Fund rules to shake-up funds

The FT (£, p28) reports that new rules to be unveiled in the US this week are likely to affect investors holding money in $900 billion (£527 billion) of the country’s $2.6 trillion money market funds industry. The proposals, expected tomorrow, will mean some funds have to switch from a fixed $1 share cost to a floating share price. The move would make funds less like bank accounts as investors see their balances fluctuate and could lead to investors moving money to banks or unaffected market funds to avoid changes. Affected fund managers may respond by introducing new products or systems to prevent investors from moving their money.

SFO begins criminal investigation into alleged forex rigging

The Director-General of the Serious Fraud Office (SFO), David Green, has announced that he will investigate claims that traders and financial staff actively manipulated the daily fix used in London’s foreign exchange market (Telegraph, B1). The £3 trillion-a-day market uses the daily rate to determine the value of their profits and portfolios. The SFO joins international regulators who are already examining the issue and is expected to apply for “blockbuster funding” to finance their work (Times, £, p32). The news comes as the SFO suggested it would bring the first Libor trial to court next year with further cases in 2016 (CityAM, p3).

OECD finds that governments have collected £29 billion in tax crackdown

The Organisation for Economic Co-operation (OECD) released figures showing that €37 billion (£29.3 billion) had been collected since 2009 in efforts to reduce tax evasion via offshore accounts (FT, £, p8). The announcement formed part of the OECD’s newly published rules for the automatic information exchange that aims to make it harder for tax evaders to use tax havens. The proposal outlines details for how banks and governments should share tax information and have been signed up to by more than 65 countries.

Stat of the day

There are 312 purchases made on debit or credit cards every second. (Payments Council, 2012).

Today’s diary

House of Commons rises for recess

House of Lords: Economic and Financial Affairs (EU Sub-Committee A) – Review of the EU Financial Regulatory Framework – Sharon Bowles

European Parliament: ECON Economic Dialogue and exchange of views with Pier Carlo Padoan, ECOFIN President and Minister of Economy and Finances of Italy

European Parliament: ECON SRM/BRRD: presentation by the Commission on the level-2 measures on contributions and on the establishment of the Single Resolution Board

In brief

A number of newspapers report that the EU and US are considering whether to introduce stiffer sanctions on Russia following the Malaysian Airlines incident (FT, £, p2). Meanwhile mounting tension in Ukraine have led to large sales of equities and purchasing of US treasury bonds, reports the FT (£, p27).

TalkTalk chief executive Dido Harding, Drax chief executive Dorothy Thompson and Experian Chairman Don Robert have been appointed as non-executive directors to serve on the Bank of England’s court. (Telegraph, B3)

The Mail (p1) reports a sharp drop in the number of homebuyers aged between 18 and 30, falling from 12% last year to only 3% this year.

Treasury Select Committee Chairman Andrew Tyrie MP has called on the Competition and Markets Authority (CMA) to “drive up standards” in banking, writes the Guardian (p22).

The Telegraph (B4) reports that the IMF has warned Germany that its 8.25% current account surplus has become economically destructive and the new Commission President Jean-Claude Juncker has to decide whether it breaches EU rules and should lead to sanctions.

Losses on US bank loans fell from 3.3% to 0.6% in the second quarter of 2014, reflecting tougher lending standards, according to the FT (£, p15).

The US Senate’s permanent subcommittee on investigations released a report yesterday accusing several international banks of claiming billions in illegal tax savings (Guardian, p22).

A number of international banks have reported drops in the volumes of trades taking place on their “dark pool” platforms in the US, reports the Times (£, p32).

A report from the Scottish Affairs Select Committee concluded that a vote for independence would put Scotland’s financial services sector at “significant risk” and suggested the proposals for new regulations were “unsatisfactory”. (FT, £, p4)

The Australian Securities & Investment Commission has fined RBS £900,000 for its role in manipulating the Australian bank bill swap rate (Times, £, p36).

Portugal’s central bank is to appoint a special advisor to help sift through offers of international help to shore up its position, reports the FT.

What the commentators say…

The Telegraph’s Jeremy Warner (B2) discusses the success of non-conventional monetary policy, arguing that “no central bank has yet been able to convincingly demonstrate that quantitative easing helps stimulate economic recover”.

The FT’s Patrick Jenkins (p18) compares and contrasts the fortunes of Barclays and Goldman Sachs following the financial crisis, while Kate Burgess (p16) argues that the CMA needs to be bold in its recommendations to boost competition in banking.

The serialisation of Mail City Editor Alex Brummer’s book “Bad banks” continues in the Mail.

Ambrose Evans-Pritchard (Telegraph, B4) argues that US sanctions have the power to cripple the Russian economy, which is in need of $750 billion (£440 billion) of new investment over the next two decades to maintain oil and gas output.

Henry Kaufman suggests that quantitative easing and the need for selective market interventions reflect a new and unprecedented relationship between markets and the Federal Reserve (FT, £, p11).

If you get five minutes

Patrick Jenkins and Sam Fleming discuss whether world leaders will be able to agree measures to solve the problem of “too big to fail” banks at the upcoming G20 in the FT’s banking weekly podcast.

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GLAC – a beginner’s guide Mon, 21 Jul 2014 16:41:11 +0000 Read More]]> This morning’s FT reported that Bank of England Governor – and Financial Stability Board (FSB) Chairman – Mark Carney is spearheading a push to agree new standards for “gone concern loss-absorbing capacity” (GLAC) to be held by Global Systemically Important Banks (G-SIBs). But what is GLAC, and why does it matter so much that the FT have put it on their front page?

Ending the problem of “too big to fail” has underpinned much of the post-crisis regulatory agenda – and a lot of progress has been made. In 2011, the Financial Stability Board agreed on a set of new tools to govern the orderly failure of banks. These rules have now been adopted in many jurisdictions, including the EU through the Bank Recovery & Resolution Directive (BRRD).

The key weapon in regulators’ new toolkit is known as “bail-in”. This grants resolution authorities the power to stabilise a failing bank by imposing losses on its creditors. The power can then be used to convert creditors’ interests into new capital to ensure the restructured entity can continue to provide critical economic functions. It means that banks and their creditors, not the taxpayer, will be responsible for the costs of failure in the future.

The question being debated by the international regulators is: does bail-in need to be accompanied by a guarantee that a minimum amount of “bail-inable” liabilities will be available in the event of failure?

Bail-in imposes losses in accordance with a creditor hierarchy. Losses follow the waterfall from equity through subordinated debt and ultimately to senior creditors. In recognition that not all liabilities can be bailed-in the BRRD excludes some classes from the scope of the power, such as insured deposits and secured liabilities. To ensure there are sufficient resources available on the balance sheet to absorb losses the BRRD requires institutions to hold a minimum amount of their liabilities in a form which can be readily bailed-in (so-called ‘MREL’). This, effectively, is the idea that lies behind GLAC.

The negotiations underway at the FSB are attempting to identify the types of liability that can most credibly absorb losses in resolution via bail-in and should therefore count towards any GLAC requirement. At the same time, the FSB is discussing how much of a G-SIB’s balance sheet should be held in this form and where across the group structure this capacity should be located.

The discussions are challenging given the very different legal and market structures of the FSB countries. Banks also have a range of business models and this translates into varying envisaged resolution strategies for the 29 G-SIBs.

For example, long-term senior unsecured debt is often regarded as the prime bail-in instrument. Indeed it was identified as such by the UK’s Vickers’ Commission. However, many banks in the East and emerging jurisdictions are deposit funded and operate in markets with very shallow capital markets. Not surprisingly, they are opposed to a standard which would require them to issue new debt just to meet this requirement – even if there were the buyers available.

Reaching an agreement on GLAC is important for two reasons.

First it would enhance the credibility of resolution and the bail-in tool. This, in turn, could help to build trust between authorities in different jurisdictions. If successful, it would address the fear that national authorities will seek to protect their own interests in a crisis and will not work together to coordinate the orderly resolution of a cross-border institution. It may even prove to be a way of providing confidence that a group level strategy is optimal and in the interests of all parties.

We’ll just need to wait until November to see whether Dr Carney is as successful at reaching international agreements as he has been on a domestic level.

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Is British influence in Brussels about to fall off a cliff? Mon, 21 Jul 2014 10:51:26 +0000 Read More]]> There have been media reports for years about the decreasing influence of the UK in Brussels. Due to increasing concerns inside the City, we decided to take a detailed look at the problem and design possible remedies.

What we have found is different from the clichés about lack of British leverage: we show in our report published today that Britain remains well-represented at the top echelons of the European Commission. (Of the 128 senior management and top cabinet positions, Germany held 20, the UK 13 and France 11 at the end of 2013.) This confirms the view that the UK has been and remains one of the most influential EU member states.

But there are two worrying tendencies that point to an impending cliff-edge for British influence – many of the highest-ranking British officials are near retirement age and there is no pipeline of junior colleagues ready to replace them.

Secondly, the proportion of British officials in the Commission is decreasing rapidly – from 9.6% in 2004 to 5.3% in 2014, compared to a UK population share of approximately 12%. And even these low numbers are concentrated in departments that are not policy focused (e.g. DG Communication).  This leaves the percentage of British officials in departments that are crucial in drafting financial services legislation even lower (3.5% in DG MARKT).

Again, a silver lining here is the outstanding performance of UK universities in preparing mostly non-British people for EU careers. At AD7 level, 20% of successful applicants come from UK universities and the LSE alone produces a significant proportion of these. This provides a significant and untapped pool of officials who may not be British, but have intellectual and emotional ties to the UK.

To improve British staff level in the European Commission, the BBA is proposing a range of possible measures, including:

  • Increasing the number of entrants to the European Fast Stream and providing for more and better preparation, in order to improve the number of UK nationals taking and passing the concours.
  • Encouraging British civil servants to spend time in Brussels during their career, e.g. by requiring civil servants to undertake a secondment to EU institutions or UKREP 
as a necessary condition for promotion to the senior civil service.
  • Improving the application rate of British graduates for EU jobs by awareness raising at universities among students with adequate language skills.
  • Increasing scholarship opportunities for British graduates at the College of Europe, which is the best preparation school for an EU job.

We acknowledge the efforts taken by the Government to improve the situation, but we think more should be done. In the coming months, the BBA will keep arguing for more efforts to increase British influence in Brussels.

Read the full report “British influence in the EU” here.

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BBA Brief – 21 July 2014 Mon, 21 Jul 2014 08:41:41 +0000 Read More]]> BBA warns that UK is losing influence in Brussels as number of key officials declines

The FT (£, p2) and the Times (£, p2) write up a research note from the BBA which warns about the loss of UK influence in Brussels as the number of British officials falls sharply.  The note finds that, the proportion of British nationals employed in policy influencing roles in the Commission has decreased from 9.6% in 2004 to 5.3% in 2014 and that the proportion of British staff is even lower in those Directorates General that are crucial in drafting financial services legislation (e.g. 3.5% in DG MARKT).  Worryingly, not a single person from the UK Government’s re-launched EU Fast Stream has gone on to join the EU Commission.  BBA Chief Executive Anthony Browne said: “London is the financial capital of Europe and has the largest number of international banks in the world. Most of the laws that govern their activity emanate from the EU.  They are strong supporters of the single market but sometimes this legislation can have difficult unintended consequences.  So it is crucial for that international cluster that the UK has as much influence as possible in Brussels… The situation is bad now, but set to get much worse. Fewer than three in a hundred people passing EU entrance exams are from the UK. We are also worried that a number of senior British officials will be retiring soon, and that the UK Government is not doing enough to replace them. This cliff edge effect is real and worrying.  Increasing the number of UK civil servants in Brussels will benefit politicians and businesses alike – the Government needs to up its game.”

Global bail-in rules run into difficulties

According to the front page of the FT Mark Carney is leading global discussions to put in place global proposals on bailing-in creditors of globally significant banks – a key part of ending too big to fail.  This could lead to some banks having to issue billions of dollars of new bonds earmarked to carry any losses.  The rules on “gone concern loss-absorbing capacity” are causing problems for the Japanese and the Chinese whose different legal and banking systems are not as compatible with the plans.  The aim is to have the issue signed off by world leaders in Brisbane in November, but the details are so contentious that they may not be agreed until the summit itself.

CMA to launch market enquiry

The Competition and Markets Authority has announced that it is minded to launch a full market investigation into the personal current account and SME lending markets in the autumn. BBA Chief Executive Anthony Browne was quoted extensively in the weekend media responding to the news saying, “Banks are pro-competition – they compete for customers every day.  Last month we published a series of ideas to help new banks set up and smaller players to grow. We hope these suggestions will be taken up by regulators and politicians.”  In his blog, BBC business editor Kamal Ahmed looks at whether the CMA review could lead to the end of free banking. He concluded, “Now the CMA has opened this Pandora’s box, it is going to be very difficult to nail it shut again.”

Free schools falling behind on financial education

BBA research has uncovered concerns that the Government’s flagship free schools are much less likely to teach financial education than the average secondary school.  The Mail on Sunday (p86) quoted Anthony Browne saying, ‘It is hugely disappointing that the Government’s flagship free schools aren’t teaching pupils how vital it is that they stay on top of their finances.  We would like to urge the new Education Secretary Nicky Morgan to make sure that at least the basics of budgeting, borrowing and saving are taught in every school.”

Which? calls for customers to shop around on overdraft charges

Research by Which? suggests that consumers could save money on overdraft charges by shopping around.  The Sunday Express quoted BBA Executive Director Eric Leenders who said that banks help customers to compare charges with itemised statements and online calculators and that consumers had recently saved nearly a billion in reduced overdraft charges. (B3)

In brief

The British business bank is looking to create securitised bonds for the asset-based finance industry to boost SME lending (Times , p43).

The Times (£, p35) reports that from Thursday investigators will have six years in which to be able to decide to bring an investigation against banking professionals for allegations of financial misbehaviour.

The Serious Fraud Office is reported to be set to launch a criminal investigation into the Forex market this week (Telegraph, B3).

El Pais reports that President of the Council Herman van Rompuy confirmed that there was  general support for the Spanish Minister of Economy Luis de Guindos to become the next Eurogroup President, on the basis that the post would stay temporary and de Guindos would only take over when current Eurogroup President Jeroen Dijsselbloem would complete his mandate in 2015.

New analysis by Santander reported in the FT (£, p4) shows that exports to Chile rose 72% in 2013.

In the Telegraph (B3) financiers warn that Government infrastructure guarantees are in danger of distorting the market.

The longest depression in UK history is set to end officially this week when GDP estimates are published on Friday taking the UK above its pre-crisis peak for the first time (FT).

Over half of banks in Europe are now using role based allowances to compensate for the bonus cap according to a survey by Mercer (FT, £, p20)

The serialisation of Mail City Editor Alex Brummer’s book “Bad banks” continues in the Mail.

Julien Sevaux, co-founder of Stanhope Capital calls for reforms to bonuses in the Independent (p53).  One option that he floats would be for investment managers to have entire bonus invested in a client’s fund, incentivising them to do well for both clients and themselves.

Asking prices for houses in the UK have fallen for the first time this year (Reuters).

What the commentators say

In the Independent (p55) David Prosser argues that “only customers can be the driving force behind better competition in SME banking, not a regulator.”

A leader in today’s FT (£, p12) calls on the ECB to start a quantative easing bond purchasing programme.

In the FT Wolfgang Munchau (£, p13) argues that the EU should “consider a ban on energy imports” from Russia.

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BBA response to HMT review of enforcement decision making at the financial regulators Mon, 21 Jul 2014 08:36:06 +0000 Read More]]> For enforcement action to be effective, those who transgress rules and expected standards of behaviour should believe they face a real and tangible risk of being held to account and expect to face meaningful and proportionate sanctions. At the same time, there is a need to ensure that the arrangements balance the need for speed and efficiency with fairness and transparency if the system is to have overall integrity and real credibility.   In this response to the Treasury’s review of enforcement decision making the BBA calls for a number of reforms to improve the current system including greater independence for the Regulatory Decisions Committee and the introduction of part-settlement.

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British influence in the EU Sun, 20 Jul 2014 23:01:56 +0000 Read More]]> Culture, acquired knowledge and networks frame the understanding of problems and the proposed solutions even in the best managed bureaucracies. This is true for the European institutions, especially for the biggest institution by sheer staff numbers, the European Commission.

While EU civil servants and Commissioners are not supposed to consider the national interests of their country, the relevant academic research1 acknowledges the importance of nationality in international organisations and the Commission implicitly accepts this by its requirement in the staff regulations for “geographical balance”.

Despite low levels of British staff compared to other EU members states, British influence in the European Commission remains high at present. This is due to the strong cohort of British officials among senior managers. Of the 128 senior management and top cabinet positions, Germany held 20, the UK 13 and France 11 at the end of 2013.

However, this could change significantly in the near future. The UK is facing a cliff edge in terms of the number of senior officials it has in the Commission. Many of the highest ranking British officials are near retirement age and there is no pipeline of junior colleagues ready to replace them.

This report looks at the numbers of British staff in the Commission, and considers the implications that declining staffing levels may have on British influence in the EU policy making process. Finally, we make a number of recommendations to the UK Government and urge them to reverse this worrying trend.

Key numbers:

  • The proportion of British nationals employed in policy influencing roles in the Commission has decreased from 9.6% in 2004 to 5.3% in 2014.
  • The proportion of British staff is even lower in those Directorates General (DGs) that are crucial in drafting financial services legislation (e.g. 3.5% in DG MARKT).
  • Looking only at the managers overseeing financial services legislation in DG MARKT, there is only one British national among 19 top managers compared to four French nationals, three Spanish nationals, and two managers each from Italy, the Netherlands and Germany.
  • In DG AGRI the top managers overseeing agricultural products from wine to arable crops are largely drawn from France, Italy and Spain.
  • Of the 128 senior management and top cabinet positions, Germany held 20, the UK 13 and France 11 at the end of 2013.
  • Approximately 1000 Commission civil servants will retire each year in the next 10-20 years. Of these, 950 will come from the EU15 (the Member States that joined before 2004) and many of them are likely to be British
  • The number of UK nationals taking the EU civil service entrance exam (the “concours”) is extremely low. In the last 3 years the UK accounted for only 2.4% of the candidates taking the exam and just 2.6% of those passing the exam.
  • Not a single person from the UK Government’s re-launched EU Fast Stream has gone on to join the EU Commission.
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