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ECB to set up Eurozone instant payment system
The ECB is to create a 24 hour instant payment system for Eurozone consumers and businesses called TIPS (Target Instant Payment Settlement) to launch in November (Financial Times, £, online). Commenting on the announcement, the ECB said the system will “help facilitate instant money transfers, offered via banks, so that citizens and firms can make instant retail payments across Europe”.
US banks pass latest round of stress testing
The US Fed has announced that the 34 largest US banks have passed the latest round of stress testing, designed to test the impact of a global recession with a 10% increase in unemployment and significant falls in property values (BBC News, online). Reuters (online) reports that a number of commentators have said the results should prompt regulators to relax regulatory standards, “we see today’s…stress test results as a positive for Trump administration efforts to deregulate the banks,” said Jaret Seiberg, a policy analyst with Cowen & Co.
Increase in first-time buyer activity
Data from the CML suggests a recovery in activity by first-time buyers, with a slow-down in buy-to-let purchases which averaged at 6000 per month, nearly 50% lower than last year (The Times, £, p40). Commenting on the data, Alastair McKee, Managing Director of broker One 77 Mortgages, said: “Buy-to-let remains on the back foot while first-time buyers are very much on the front. It’s a narrative that has been consistent throughout 2017 and is likely to continue for some time yet”.
BoE’s Haldane favours higher rates
The Bank of England’s Chief Economist Andy Haldane has indicated that he might support an increase in interest rates later this year, warning that “leaving a rate hike until too late risks steeper rate rises in the future” (BBC News, online). The Guardian (p23) reports that his comment prompted sterling to rise, reaching $1.27 before falling back before markets closed.
FESE publishes report on capital markets
The Federation of European Securities Exchanges (FESE) has published a report with Oliver Wyman, calling for European capital markets to be accessible to all market participants regardless of location (Politico, £, online). Commenting on the report, Deirdre Somers, FESE President, said, “exchanges are a key solution for European companies seeking to improve financing and risk management, providing them with the tools to manage their risks and access to capital in order to grow, scale and deliver the jobs, brands and economic multiplier Europe needs”. The report is available here.
Mark Russell, BBA Senior Policy Director, Financial Stability blogs on the first test of the EU’s bail-in regime.
Queen’s speech to set out legislative priorities
The Queen will set out the Government’s priorities over the next two years at today’s State Opening of Parliament at 11:30. The main item will be the Great Repeal Bill, which will copy EU legislation into UK law, with other measures to include banning landlords from charging “letting fees” and reducing motor insurance premiums (BBC News, online). Commenting ahead of the speech, Prime Minister Theresa May said: “…this is a Government with purpose. Determined to deliver the best Brexit deal. Intent on building a stronger economy and a fairer society”.
Carney: ‘too soon’ for rate rise
Speaking at Mansion House yesterday, Bank of England Governor Mark Carney warned that falling wage growth and the impact of Brexit mean that it is too early to increase interest rates (BBC News, online). Carney said, “from my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment [rate rises]”. The full text of his speech is available here.
Chancellor Philip Hammond and Governor of the Bank of England Mark Carney both spoke at Mansion House yesterday morning, setting out the key issues for the UK economy and financial services.
Chancellor and Bank of England set out Brexit priorities
Speaking at Mansion House this morning, Chancellor Philip Hammond identified four priorities for Brexit negotiations: a comprehensive agreement on trade and services, a mutually beneficial transitional arrangement, frictionless customs arrangements and an implementation period (The Guardian, online). Bank of England Governor Mark Carney warned that, “splitting Europe’s market for clearing euro-denominated derivatives would bump up costs for users and do little to improve financial stability” (Reuters, online).
Formal negotiations over the UK’s exit from the EU began yesterday. BBC News reports that early discussions will focus on citizens’ rights, the UK’s financial settlement and the EU/Northern Ireland land border, while The Daily Telegraph (£, p1) notes that Brexit secretary David Davis reaffirmed the UK’s commitment to leaving the single market and customs union.
ECB to mandate cyber-attack reporting
Banks supervised by the ECB will be required to disclose all major cybersecurity breaches to the central bank from this summer. City AM (p10) reports that the ECB will also review cyber security at banks, noting that this issue remains high on regulators’ agendas following a series of high profile attacks. ECB Executive Board member, Sabine Lautenschlaeger, said the measures, “will help us to assess more objectively how many incidents there are, how cyber threats evolve [and] help us to identify vulnerabilities and common pitfalls”.
Brexit negotiations begin today
UK and EU officials will meet today to begin formal talks to agree the terms of the UK’s departure from the EU. BBC News (online) reports that early discussions will include, “the status of expats, the UK’s ‘divorce bill’ and the Northern Ireland border”.
A number of papers report comments made by Chancellor Philip Hammond this weekend on the importance of securing a good deal for businesses as part of the negotiations, including his argument that the final deal should include a lengthy transition period (The Times, £, p1).
The Financial Times, (£, p6) includes a guide to the EU and UK negotiating teams, and The Guardian (p11) sets out a guide to the main treaties to be discussed.
BCBS fails to agree new Basel standards
Talks to agree new capital standards for banks have broken down after EU and US regulators were unable to agree on an ‘output floor’. Politico (£, online) writes that while BCBS Chairman Stefan Ingves and US regulators are said to have been prepared to endorse a 75% limit, however EU regulators were unable to agree a floor above 70%.
Bank of England sets out ring-fencing challenges
The Bank of England has set out further detail on its requirements for implementing ring fencing legislation. Speaking at a BBA event on Friday, James Proudman, Executive Director for UK Deposit Takers Supervision, said: “against the back-drop of other regulatory, accounting and business model changes – not the least of which is Brexit – it is easy to see that the banks in scope of ring-fencing are facing significant restructuring challenges”. The Financial Times (£, online) highlights that that the changes will mean nearly a million retail customers may be given new sort codes.
Bank of England votes against interest rate rise
The Bank of England has voted to leave interest rates unchanged although yesterday’s decision split the MPC by three votes to five, in a move that has been widely interpreted as a signal that rates may rise faster than market expectations (The Times, £, p45). This prompted a surge in the value of the pound, to $1.28 against the dollar (Sky News, online), and a number of commentators highlighted the risks of rising inflation and reduced consumer spending Financial Times (£, p1).
FCA extends Sandbox project
The City regulator has offered 31 fintech firms the opportunity to test their ideas in a regulatory ‘safe space’ or ‘Sandbox’ that prevents risk to the public (Daily Mail, p73). This is the second round of firms to be granted access to the scheme. Christopher Woolard, Executive Director of strategy and competition at the FCA, said the sandbox continues to “grow in popularity” which means “more innovative propositions” are being brought to market, “promoting innovation and competition in the markets we regulate” (FCA press release).
Brexit negotiations to start next week
The UK and EU will formally begin Brexit negotiations on Monday 19 June. BBC News (online) reports speculation that the Chancellor is keen to, “secure transitional deals early on in order to stabilise the economy”. Reuters (online) reports calls from some EU members for the Prime Minister to abandon her position on leaving the negotiations without a deal, while speculating that, “other EU governments will be happy to let Britain keep trade open as it would limit the hit to their own economies”. Commenting on the dispute over an exit payment, the European Commission’s Chief Negotiator Michel Barnier said he, “would like to very quickly play down this question, and find concrete, pragmatic and just solutions”.
The banking industry recognises that many of those who have lost their homes in the tragic fire at Grenfell Tower have also lost all access to their bank cards, accounts and ID documents and is ready to help.
Chancellor to set out Brexit priorities
Chancellor Philip Hammond will set out his priorities for Brexit negotiations in a speech at Mansion House tonight, noting that jobs and the economy should be the UK’s first priority (BBC News). The Financial Times (£, p3) speculates that he will warn of the dangers of a hard Brexit and call for a, “a significant transition period to allow British business to adapt to leaving the customs union and single market” and for a softer approach on immigration. Politico (£, online) reports that the Chancellor will commit to match £48 billion of funds from the European Union’s investment bank.
Stephen Barclay appointed as City Minister
Former Barclays Director Stephen Barclay has been appointed City Minister by Prime Minister Theresa May. The Guardian (p26) writes that the new Minister, who has also worked at the FSA, takes over the role as a number of EU countries bid to attract financial services business away from the UK. BBA CEO Anthony Browne said, ”this is a crucial time for the financial services industry. Days away from the start of Brexit negotiations, it is vital that there’s an open dialogue between Government and business. We stand ready to support the new City Minister and the Government in ensuring that firms can continue to offer a high-quality and innovative service to their customers in the UK and globally.”
US Fed raises interest rates
The US Fed has raised interest rates by 0.25%, the third increase in six months, crediting a stronger jobs market and economic growth. Sky News (online) reports that the Fed had forecast US economic growth of 2.2% for 2017, with inflation expected to be 1.6%. BBC News (online) notes that “interest rates remain low by historic standards. The board expects to raise rates at least three times this year”.
‘Divisions’ over soft and hard Brexit
The Times (£, p1) reports speculation that the Government may seek to retain access to the EU customs union, while The Daily Telegraph (£, p1) notes that the Prime Minister has reaffirmed her commitment to leaving the single market and the principle that no deal with the EU is better than a bad deal.
French President Emmanuel Macron, has said that the UK could still change its decision to leave the EU, noting that, “until negotiations come to an end there is always a chance to reopen the door” (The Guardian, p1).
ONS: House prices rise by £12000 last year
The average house in the UK cost £220,100 in April, a £12,000 increase from April 2016, according to the Office for National Statistics (The Guardian, online). House prices grew fastest in Scotland over the year, at 6.8%, while the slowest growth was in the North East of England at 0.6% (BBC News, online).
Reaction to European Commission’s proposals on Euro clearing
The European Commission has proposed new rules for oversight of non-EU clearing houses, with systemically important firms to face increased scrutiny, with the potential for euro-denominated clearing to be relocated to the EU (Bloomberg News, online).
Reacting to the proposals, Catherine McGuinness, Policy Chairman at the City of London Corporation warned that the plans, “would Balkanise markets and drive up trading costs by as much as a fifth”. TheCityUK CEO Miles Celic said, “despite the Commission recognizing the costs that a clearing location policy would pass on to European savers and businesses, it appears politically committed to exploring this further”. The UK Treasury commented that the, “terms on which UK firms access EU markets, and vice versa” were a matter for the formal Brexit negotiations”.
BBA policy adviser Iris Kapelouzou discusses the latest WWF report outlining what banks can do to be environmentally sustainable, and contribute to maintaining our world heritage.
European Commission calls for clearing relocation
The European Commission is expected to propose that ESMA should have greater oversight of clearing activity, along with rules that could force relocation of Euro clearing activity into EU if a particular clearing house has, “specifically substantial systematic significance” to the EU (Financial Times, £, p4). LSE Chief Executive Xavier Rolet has warned that these proposals would create a “rump, illiquid and systemically more dangerous Euro clearing market” (City AM, p1).
‘No deal’ on Basel this week
Reuters (online) reports that regulators from France, Germany and the Netherlands are set to block a deal on completing Basel II at this week’s meeting of the BCBS, suggesting that, “the hope is that enough progress is made this week for it to be referred for the second time this year to Basel’s oversight body to broker a final deal before momentum runs out”. Francois Villeroy de Galhau, Governor of the Bank of France, has called for improvements to internal models, noting that “it is better to give it some time to reach a good agreement than to rush to bad arrangements”.
FOS publishes complaints data
The Financial Ombudsman Services has published its latest annual report showing an overall reduction in complaints about banks. The Financial Times (£, p3) notes that complaints about payday loans rose substantially, with a third of calls made to the service came from customers with general financial or debt problems. FOS Chief Executive and Chief Ombudsman Caroline Wayman said “the most striking story this year has been the rise in complaints we’ve seen from people having trouble with credit… It’s clear that financial difficulties and financial exclusion remain significant challenges for many people” (Sky News, online).
Impact of the general election on Brexit
A number of papers report speculation on what the UK’s general election result will mean for Brexit. City AM (p1) reports that while some businesses believe that “aspects like mutual access, a workable transitional agreement and access to international talent could be easier to achieve” others think that the likelihood of a no deal scenario have increased.
Speaking on BBC Radio 4’s Today programme, Brexit Secretary David Davis said the government still plans to take the UK out of the Single Market, commenting that, “[in the EU referendum] the people voted for three things: control of borders, control of laws, control of money. You can’t deliver that inside the Single Market”. Meanwhile, the EU has warned that Brexit negotiations could be delayed by a year if the UK insists on simultaneous talks on leaving the EU and agreeing a future trade deal (The Guardian, p9).
Regulators increase focus on money laundering
The Financial Times (£, p21) reports that foreign governments made 163 requests for assistance with money laundering investigations from the UK authorities last year, up 12% compared to 2016, and highlights the FCA’s recently renewed commitment to “prosecuting particularly serious or repeated failings”. Citing the attractiveness of the London property market, Thomson Reuters said, “despite the controls at UK banks, the sheer volume of financial transactions that take place every day in London, and the high concentration of financial institutions, makes money laundering through the banking system increasingly easy to disguise”.
Andrew White, VP EMEA, Vidyo, Inc. blogs on how video-enabled platforms ingrate the trend for digital engagement with the benefits of face to face interaction.
Market reaction to hung Parliament
BBC News (online) is reporting that Theresa May is expected to head to Buckingham Palace today, “with the understanding she can form a government”. Bloomberg News reports that, “the pound tumbled as the U.K. faces a hung parliament and an unclear course in its approach to exit the European Union, [however] other assets shook off the election results”. A number of live updates on political market reaction are available, including BBC News (online), The Guardian (online) and The Daily Telegraph (online). The Financial Times (£, online) noted that in the event of a hung Parliament it is likely the, “EU will be open to giving Westminster time to form a government, be it for a few weeks or a couple of months. But should there be deadlock in Westminster, there is extremely unlikely to be any willingness to extend deadlines”.
US policy-makers seek to revise Dodd-Frank
BBC News (online) reports that the US House of Representatives has approved a Bill that would repeal key measures of the Dodd-Frank Act, including an opt-out for banks if they maintain a 10% ratio of capital to assets and changes to the rules on residential mortgages.
European Commission publishes review of CMU
The European Commission has proposed a number of changes to its Capital Markets Union package, including increased powers for regulators and enhanced cross-border cooperation (Politico, online). Reaction to the proposals was mixed, with many commentator prising aspects of the package, but highlighting concerns over the speed of progress.
‘No delay to MiFID II’ – ESMA’s Maijoor
ESMA Chair Steven Maijoor has confirmed that there will be no further delays to the introduction of the EU’s new MIFID II requirements, effective from 3 January 2018. The rules are designed to increase transparency and enhance investor protection, however the Financial Times (£, online) notes that some of the technical standards underpinning the rules are yet to be finalised, with a consultation on which derivatives trades must take place on exchange or electronically to be published shortly.
Mixed signals on future house price rises
The latest Halifax House Price Index indicates that the annual rate of house price inflation is slowing down, reporting an average increase of 3.3% in May, down from 3.8% in the year to April (BBC News). However, a survey by the Royal Institution of Chartered Surveyors (RICS) suggests that house prices are expected to rise by an average of 3.5% every year until 2022 (Sky News). RICS Chief Economist Simon Rubinsohn said, “perhaps the most ominous signal emanating from the data… is that contributors still expect house prices to increase at a faster pace than wages over the medium term despite the difficulty many first time buyers are clearly having in taking their first steps onto the property ladder”.
Banks make it easier for friends and family to help customers in vulnerable circumstances
Major retail banks and building societies will make it easier for approved third parties to help customers in vulnerable circumstances manage their money. The Daily Mail (p48) reports that staff will receive additional support and training to deal with complex paperwork and change the way customers using power of attorney can access online and telephone banking.
Sue Willis, Chair of BBA’s Third Party Access Working Group which coordinated the development of these changes, said banks are keen to understand how they can enhance their offering, “as part of the industry’s wider commitment to provide the best possible service for those who may need to let a third party access their accounts or information about their accounts”.
Relocating Euro clearing could double collateral requirements
Relocation of Euro clearing activity after Brexit could force investors to double the amount of collateral posted with banks to clear trades according to Walt Lukken, CEO of the FIA (The Times, £, p42). Transactions worth over €500 trillion are cleared through the UK every day, and FIA has warned that “a forced relocation of euro-denominated derivatives clearing would be severely detrimental to the economic interests of the EU” (City AM, p3).
Call for FCA to review broker/lender relationships
The Director General of the CML Paul Smee has called for the regulator to review the relationship between mortgage brokers and lenders as part of an ongoing review into competition in the mortgage market (Mortgage Strategy, online). He added that the FCA should not broker procuration fees, highlighting the need to ensure that, “the way in which the system works doesn’t distort the market, which arguably in the past in the IFA market it did”.
Holly Whitehead, Research and Development Manager at International Compliance Training, writes that investing in training for compliance staff after breaches are discovered is too little, too late.
Buy to let mortgage activity drops, rents fall in May
Buy to let lending has fallen by 17% in the last two years, according tothe Council of Mortgage Lenders (CML) (BBC News). Describing the changes CML Director General Paul Smee said that recent regulatory reforms have created a “smaller, more professional” group of landlords, and cautioned against making further changes to the rules on mortgages until the impact of the most recent initiatives can be fully understood.
City AM (p9) reports that rents in the UK fell by an average of 0.3% last month, the first fall since December 2009. HomeLet’s chief executive, Martin Totty said: “Homelet rental data suggests landlords are now facing a difficult balancing act between ensuring rents are affordable for tenants in a low real wage growth environment whilst covering their own rising costs”.
EU considers policies to tackle NPLs
Politico (£, online) reports that the European Council is considering a range of policy options to address non-performing loans (NPLs), including giving national supervisors the power to impose binding reduction targets on banks and increase loan-origination standards to prevent future build-up of NPLs. Other proposals include creating an EU-wide set of principles for the transfer, ownership, and management of NPLs by bank and non-bank investors, examining the case for a harmonised regime on collateral lending to corporates, and introducing a definition of the term “insolvency” into EU law.
ESMA to create Brexit coordination body
Financial News (£, p17) reports that ESMA will create a Supervisory Coordination Network to ensure regulatory standards are consistently applied by EU 27 countries after Brexit. Responding to concerns that Brexit may trigger a regulatory ‘race to the bottom’, ESMA set out nine principles for local regulators to consider, ruling out automatic recognition of UK-authorised firms that want to relocate after Brexit. ESMA Chair, Steven Maijoor said, “trying to find the best location in the EU27 is understandable, but it should not be done on the basis of competition on regulatory standards”.
One in five have less than £500 saved
A survey of 2000 people by L&G has revealed that one in five adults have less than £500 in savings (BBC News). A further 23% had no savings and 26% reported that their savings would run out in a week or less Respondents in Wales reported the shortest “deadline to the breadline”, with an average of 26 days savings, while Northern Ireland reported the highest level of savings, at 36 days.
80,000 businesses at risk from rate rise
The Times (£, p39) reports research from the Association of Business Recovery Professionals suggesting that 80,000 business would struggle to manage a rise in interest rates of 0.25%, with 96,000 companies reporting that they currently only repay interest on their debts. Insolvency practice R3 said, “this is the first increase in the number of businesses worried they would be unable to cope with an interest rate rise since 2014, and it coincides with a period of slower-than-expected growth and a small rise in corporate insolvency numbers”.
BBA Executive Director, Prudential Regulation and Risk, Simon Hills on why the PRA’s proposed reforms to Pillar 2A are a step in the right direction towards levelling the playing field between SA and IRB banks.
Basel Committee to agree 75% output floor
Politico (£, online) reports that the BCBS will agree a 75% output floor for bank capital. Citing an internal document sent to governors and heads of supervisors ahead of its June meeting, Politico writes that, “support for an agreement on so-called Basel III standards has increased further… the vast majority of Committee members support an output floor of 75%.”If agreed the proposed floor is expected to be introduced on January 1, 2021 at 45%, rising by 5% every year until January 1, 2027.
Politico also notes that the committee is also considering a, “leverage ratio buffer surcharge for the most systemically important banks from 2021 [and reviewing] the impact of the leverage ratio on client clearing”. Read BBA Executive Director, Prudential Regulation and Risk Simon Hills’ blog on why regulators must take a consistent approach to introducing the new requirements.
Prime Minister ‘to recognise the City’s needs’ in Brexit talks
In an interview with City AM, Prime Minister Theresa May has said that, if elected, her Government would recognise the needs of the city and financial services in Brexit negotiations (City AM, p7). Commenting on the importance of an implementation period, she argued that it, “isn’t in anybody’s interests to simply walk towards a position where there’s a cliff edge…people will need a time to adjust”.
Iris Kapelouzou, BBA policy advisor, blogs on how banks are making it easier for friends and family to help customers in vulnerable circumstances manage their money.
Simon Hills, BBA Executive Director, Prudential Regulation and Risk blogs on the importance of supervisory cooperation.
Bank of England publishes borrowing data
Banks and building societies approved 118,370 residential mortgages in April, falling for the third consecutive month according to Bank of England Data. The Times (£, p40) attributes this to a number of factors, including changes to stamp duty and mortgage interest tax relief. EY Item Club Senior Economic Advisor Martin Beck, said “recent data on house price inflation and survey evidence on housing transactions have pointed to a distinct lack of energy in the market”. The BBA’s latest high street lending data is available here.
Debate over EBA reforms after Brexit
Speaking at a banking conference in Berlin yesterday German Chancellor Angela Merkel called for the EBA to be relocated to Frankfurt after Brexit, highlighting that Brexit “must come at a cost” to the UK (BBC Radio 4 Today’s Programme). Reuters (online) reports that the EBA has criticised the European Commission’s proposal for it to be merged with EIOPA and has asked for more powers, noting that, “since the European Central Bank, which has far greater resources, began supervising banks in the euro zone, the [EBA] has suffered a loss of visibility”.
EU agrees securitisation package
Following the seventh round of discussions, the European Commission, Parliament and Council reached a political deal on Tuesday night to revive the EU’s securitisation market (Politico, £, online). Valdis Dombrovskis, Vice-President of the European Commission, remarked in response, “This agreement marks another big step towards the creation of a capital markets union…It will free up bank lending so that more financing can go towards supporting our companies and households”. Read the full press release on the agreement here.
Consumer confidence levels in the UK and Europe
British consumer confidence grew in the month of May, according to GfK’s consumer confidence index (City AM, p1, online). Optimism about personal finances and the wider economy prompted consumers to make future plans and shop, as retail sales jumped ahead of expectations. Paradoxically, euro-area confidence dropped unexpectedly in May, supporting European Central Bank President Mario Draghi’s call for sustained monetary policy support in the region (Bloomberg, online).
Global economic growth gathering pace
According to credit rating agency Moody’s, global economic growth is picking up after key threats, predicted to derail growth, failed to materialise (The Daily Telegraph, B1). Political risk, one of these key threats, diminished when Macron defeated Le Pen in France, and when the US seemingly abandoned their pursuit of protectionist policies. The G20 economies are expected to grow by more than 3% in 2017 and 2018, up from 2.6% in 2016.
Sam Mannion, BBA Policy Director, blogs on the FSB’s most recent meeting on agreeing a framework for identifying derivatives transactions.
Election candidates discuss Brexit
Both Theresa May and Jeremy Corbyn faced questions on Brexit during a live TV debate last night, with Theresa May confirming she will not settle if the proposed deal does not suit Britain (Sky News, online). Meanwhile, Angela Merkel has warned that Europeans can no longer wholly depend on their traditional Western alliances with the US and UK following the Brexit decision (Guardian, p3, online)
Banks prepare for new EU data protection regulation
Banks have one year left to change the way in which they store and handle customer data, in order to comply with the the EU General Data Protection Regulation due to come into effect in May 2018. Failure to do so will incur significant fines. Banks have expressed concern that meeting the deadline will be a challenge, given the changes required to their ageing and complex IT systems (Financial Times, online). For more information on data protection and what the new regulation entails, take a look at our Brexit Quick Brief document here.
Old technology leaves firms vulnerable to financial crime
A report by LexisNexis risk solutions has found 92% of financial services professionals believe cybercrime is the biggest risk for their companies, as technology cannot keep pace with evolving criminal methods. Geopolitical changes constitute the second biggest future financial crime risk. Study participants included nearly 200 senior professionals working in retail and investment banks, as well as asset management firms (City AM, p13, online).
ECB to set up Eurozone instant payment system The ECB is to create a 24 hour instant payment system for Eurozone consumers and businesses called TIPS (Target Instant Payment Settlement) Read More
BoE’s Haldane favours higher rates The Bank of England’s Chief Economist Andy Haldane has indicated that he might support an increase in interest rates later this year, warning that “leaving Read More