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BBA brief is a round up of each morning’s banking policy news prepared by the BBA’s media team. It is a selection of the articles in the papers and broadcast stories. The content does not reflect the views of the BBA.
Eurozone ‘pop-up branches’
It could take up to a year to secure a license that will allow UK banks to operate in the eurozone post-Brexit, the ECB has warned, prompting concern that they won’t be ready to leave the EU by 2019 (Financial News, p19, £, online). The Times (p. £, online) reports that US banks have proposed ‘pop-up branches’ that will enable them to provide services to the eurozone, while keeping the majority of staff and work in London, as a means to minimise financial disruption. Regulators are concerned that ‘pop-up branches’ will mean banks won’t have a ‘proper presence’ in European countries. In other Brexit news, the EU has ring-fenced UK financial services from a future trade deal to ‘safeguard financial stability in the Union’ (Bloomberg, online).
Election campaigns in the UK and France continue
Sir Keir Starmer, Shadow Brexit Secretary, will reveal the Labour party’s Brexit manifesto today (i paper, p4, online). If elected, the party has pledged to scrap the Great Repeal Bill in favour of legislation that protects EU workers’ rights and environmental standards, and prioritise UK access to the single market during exit negotiations. Meanwhile, the French Presidential contest continues as Macron’s success prompted $290 billion to be added to the global market (City AM, p1, online). His opposition, Marine Le Pen, has stepped down as leader of the National Front in a bid to widen her voter appeal (BBC News, online).
Employment in the financial services sector
City AM reports (p1, online) that the financial services sector employs 7.3% of the UK’s working population, and workers in the sector contribute 1.5 times more to the economy than the average UK employee. In the year to March, financial services salaries rose by 3.5%, four times faster than other professional industries, as employers seek to secure top talent (City AM, p7, online). Meanwhile, a study by Boston Consulting Group has found the most efficient way to achieve workforce gender diversity is to promote women already working in the company, as opposed to relying on a ‘scattergun approach’. Robust flexible working schemes, clear targets and visible role models also help (Financial Times, p17, £, online).Read more
Macron and Le Pen in final round of Presidential race
Centrist Macron will face far right Front Nationale candidate Le Pen in the final round of the French presidential contest, following yesterday’s vote (BBC Radio 4 Today Programme, online). Despite a boom in the value of the euro following the first round result, analysts predict that the future of the French economy remains uncertain, prompting the ECB to confirm it will support national banks with cash if needed (Reuters, online).
The future of Fintech
The future of financial technology or ‘fintech’ requires effective and ‘agile’ regulation that can keep pace with technological developments, BBA Chief Executive Anthony Browne writes in Raconteur (The Sunday Times, Supplement 1, p6). Fintech continues to attract top talent as MBA graduates are increasingly picking jobs at startups as opposed to banks, a Goldman Sachs survey has found (Financial Times, p, £, online). Meanwhile, Barcelona has announced its eligibility as a new location for Fintech companies wishing to leave the UK following Brexit (La Vanguardia, online).
The City backs plans to keep European Court of Justice jurisdiction
A proposal by the UK government to keep the European Court of Justice as the ‘ultimate authority in financials services’ for up to five years after Brexit could maintain UK access to the single market, The Times reports (p39, online). A survey by GW Employment Law, however, has found that 70% of financial services firms in the UK wish to change EU law in regards to employment protections (Independent, online). As Brexit proceedings continue, the US commerce secretary Wilbur Ross has told the Financial Times that the US is willing to strike a deal with the EU, a shift in tone from the Trump administration’s previous attempts to strike bilateral deals with EU members as opposed to the bloc in its entirety (p5, £, online).Read more
Government scraps probate plans
Government plans to replace the existing probate scheme with a ‘sliding scale’ based on estate value have been scrapped due to time constraints before the general election, said the Ministry of Justice (BBC News, online). The ‘death-tax’, so-called by critics, would have increased probate fees to as much as £20,000, prompting MPs to question the legality and social consequences of the proposal (Daily Mail, p1, online).
Election manifestos outline key policies
Theresa May has pledged to reduce net migration in the Conservative party’s manifesto in an attempt to appeal to Northern Labour voters, The Daily Telegraph (p1) reports.Meanwhile, the Guardian writes that ‘the most important election for Britain is the presidential contest in France’, the first round of which takes place on Sunday. The result may ‘put Brexit in the shade’ or impact our own election result (The Guardian, p30, online).
Brexit negotiation guidelines revealed
Leaked European Commission negotiating guidelines reveal Brussels’ requirement that the UK remain subject to European Court of Justice laws post-Brexit (The Times, p1, £, online). Any exit deal that does not uphold EU citizen rights will be vetoed as part of this ‘hard line approach’, warned European parliament chief Antonio Tajani (Financial Times, £, online). The guidelines also say the UK must pay all Brexit costs and ‘bear the currency risk’ (Politico, online). Tajani added, however, that Britain would be welcomed back if a new UK government reversed Brexit after the general election (The Guardian, p1, online).Read more
EU “administrative chill”
An internal memo sent by senior European Commission officials to all EU staff highlights a growing “administrative chill” ahead of Brexit proceedings (Financial Times, £, online). Staff were told to prepare for UK agencies to be disconnected from “sensitive databases” and reminded staff that legally, contracts can only be awarded to parties established in the EU. The memo follows a statement from Margaritis Schinas, spokesperson for the European Commission, who said the UK will have “no say” in the relocation of the European Banking Authority (Bloomberg, online).
Fintech growth continues
UK fintech startups received £177 million in investment during the first three months of 2017, confirming the UK as the European Fintech capital (CityAM, p11). The Telegraph reports (B1, £, online), however, that the UK faces growing competition from China due to their looser regulation standards and the $7.1billion rise in funding for Asian fintech companies last year. Similarly, Level39, a fintech accelerator, urges banks to invest in startups that offer the technology they need or else they may face a ‘cliff-edge’ (The Times, p50).
General election campaigns gather pace
MPs backed Theresa May’s proposal for a general election on June 8 by a 509 majority. The Daily Mail reports that the conservative manifesto will commit the party to ending EU free movement and leaving the single market and European Court of Justice (p1, online). Jeremy Corbyn is expected to announce a manifesto that is “heavy” on big businesses that act “in an irresponsible way” (The Times, online).Read more
Theresa May calls for a snap election
Theresa May has announced plans for a general election on June 8, providing the proposal receives a two thirds majority vote today in the House of Commons. The announcement was met with optimism by the business community who see the election as an opportunity to ensure certainty during Brexit talks and consequently, a smoother exit (Telegraph, B1). The announcement also caused sterling to rise to its highest level in six months (i, p38).
Financial services firms are discussing a ‘metered, pay as you go approach’ to research analyst charges in compliance with MiFID regulation. Although estimated to save European and U.S asset managers more than $300 million (Bloomberg, online), there are concerns that this regulation will mean smaller firms struggle to cope with research costs (Financial Times, £, online).
IMF forecasts UK growth
The International Monetary Fund (IMF) has recognised UK growth performance as ‘stronger than expected’ and increased its growth forecast to 2% from 1.5% in January 2017. The UK is now the second fastest growing G7 economy, with the US taking first place (The Times, £, p39). Theresa May said this increase proved the ‘economic resilience’ of the UK, and ‘gave her the confidence’ to pursue a snap election (The Telegraph, B1).Read more
Breaking news: election announcement
UK Prime Minister Theresa May has called for a snap election on June 8 2017 to secure ‘strong and stable leadership’ to see the UK through ‘Brexit and beyond’ (BBC News, online).
Labour oppose high street bank closures
Labour will oppose the ‘epidemic’ of high street bank branch closures by introducing ‘legal obligations’, The Shadow Chancellor John McDonnell has said (The Independent, online). New bank laws will ensure banks retain a high street presence to help small businesses and customers in vulnerable circumstances. BBA’s Managing Director for Retail Eric Leenders said there has been a ‘digital revolution’ in the way we bank, however the decision to close a bank branch is ‘never taken lightly’ and banks are working in partnership with the Post Office to ‘make face-to-face banking available.’
Brexit discussions continue
The location of the London-based European Banking Authority post-Brexit remains undecided and will be ‘subject to exit negotiations’, the UK government has said (Reuters, online). Meanwhile, the German Chamber of Commerce and Industry has warned German companies located in the UK that they may be required to ‘make back’ tax payments after Brexit (FAZ, online). Despite skepticism from members of the European Parliament’s trade committee during ongoing discussions, International Trade Secretary Dr. Liam Fox has insisted that the UK will participate fully in EU talks up until such point that the UK’s membership ends (The Sun, online).
Glass-Steagall Act 2.0
Thomas Hoenig, vice-chairman of the Federal Deposit Insurance Corporation, has proposed a ‘third way compromise’ in an effort to restore the Glass-Steagall law and financial deregulation (Financial Times, £, p4). Hoenig has proposed a ‘watered down version’ of the law inspired by UK ringfencing rules due to come into effect in 2019, that separate retail and investment banking activities.Read more
Bank of England warns on Fintech financial stability risks
Bank of England Governor Mark Carney has said that policy-makers must balance the social and financial stability risks posed by Fintech and the benefits it offers to customers (The Times, £, p46). Speaking at a Fintech summit yesterday, Carney said that, “there was no need to toughen up regulation for the sector as it has so far, ‘avoided undertaking traditional banking activities’”, however regulators may step in if it finds evidence of risks to banks’ funding (The Daily Telegraph, £, B5) .
EU securitisation talks stall
Politico (£, online) reports that negotiations over the EU’s proposed securitisation rules remain deadlocked after five trilogue meetings. Rapporteur for the securitization file Paul Tang MEP highlighted slow progress on the risk retention rate and third country access which would allow the UK to operate under the new framework after Brexit. Tang sad, “We’ve made some progress on technical issues … But it’s very clear the Council doesn’t want to touch upon third-country equivalence”, conceding that talks are likely to extend into June.
Fears over consumer debt
4 in 10 adults in the UK say they are concerned about their personal debts, according to a survey by insolvency practitioner R3, with 49% worried about their credit card debt (The Times, £, p44). The Wall Street Journal Europe (£, B8) reports that policymakers on both sides of the Atlantic have highlighted concerns over rising levels of household borrowing, noting US Fed data that suggests a quarter of US banks expect customers will struggle to meet debt repayments this year.Read more
Cybercrime linked to fall in share prices
The share prices of firms affected by cyber attacks fall by an average of 1.8% after news of the breach is reported, with global investors losing a total of £42 billion in value from cyber-related share prices falls since 2013 (City AM, p1). Research by Oxford Economics has found that investors in a typical FTSE100 firm would lose an average of £120 million following news of a cyber incident (The Daily Telegraph, £, B3).
European regulators to issues Brexit guidance
ESMA will issue guidance for EU27 regulators to avoid a regulatory race to the bottom from jurisdictions seeking to attract UK banking operations to the EU after Brexit (Reuters, online). The ECB has said that banks should allow up to six months to apply for new EU licences to transfer operations out of the UK after Brexit (Bloomberg, online).
MasterCard acquisition of Vocalink approved
The CMA has approved MasterCard’s acquisition of Vocalink, after agreeing measures to address concerns over competition. MasterCard and Vocalink will, “open up Vocalink’s existing network to a new services supplier, and contribute to the costs of those Link members that want to change to a new supplier” Financial Times (£, p20). Vocalink facilitates payments worth £6 trillion a year and owns the BACS system, Link and mobile payments app Zapp (The Times, £ p50).Read more
Firms consider alternatives to secure EU access
The Financial Times (£, p3) writes that financial services firms are investigating whether volunteering to adhere to EU regulations would allow them to retain access to EU markets, allowing them to “strike trading deals on a firm-by-firm basis or even for individual lines of business”.
EU leaders are expected to approve Tusk’s negotiation guidelines in Brussels today, before they are formally adopted on April 29 (Financial Times, £, online). No substantive revisions are expected to be made to the proposals set out in March, but there may be an attempt to strengthen the language regarding the rights of EU citizens.
UK Fintech growth continues
The FCA has published a discussion paper inviting views on how distributed ledger technology, which underpins blockchain and bitcoin, can be applied in regulated markets. Speaking at Innovate Finance Global Summit, Executive Director of Strategy and Competition at the Financial Conduct Authority Chris Woolard said the regulator was “committed to supporting innovation” (Reuters, online). His speech and the FCA discussion paper on blockchain are available online.
May supports use of sanctions against Russia
Prime Minister Theresa May has backed the potential application of further sanctions against Russia (Reuters, online). G7 leaders meet today to discuss potential sanctions, which could include travel bans and asset freezes against Russian officials, as well as measures targeting the financial, energy and defence industries (The Times, £, p6).Read more
FCA provides more insight on forthcoming review
The FCA is reviewing the way banks apply unauthorised overdraft charges, and will consider, “taking action to cut fees charged to customers who go overdrawn without approval and to ensure they are given clearer warnings of imminent charges” (Mail on Sunday, online). FCA Chief Executive Andrew Bailey has warned that this review, alongside potential changes to credit card charges, will place downward pressure on banks’ margins (The Daily Telegraph, £, B1).
UK Fintech finds global success
City AM (p11) writes that the UK has been ranked as the top global fintech hub by Deloitte, beating Silicon Valley and Tokyo. Ellen Burbidge, HM Treasury special envoy for fintech, has said that the UK must focus on three areas in order to retain pole position and encourage further growth; customer experience, financial inclusion and cyber security (City AM, p17).
Millennial attitudes to saving revealed
Research conducted by FT Money and BritainThinks has found that millennials prioritise saving for property over pensions, yet are unable to evaluate the benefits of different savings vehicles (FT Money, £, p8). The Financial Times notes that, “nearly half thought that higher-rate taxpayers would be better off saving in a Lifetime Isa than a pension, reflecting a lack of understanding over how pensions tax relief works”. Commenting on the findings Deborah Mattinson, BritainThinks founder, said that there is a clear ‘pecking order of priorities’ for millennials; lifestyle choices come first, followed by property and lastly, pensions.(FT Money, £, p9).Read more