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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.
UK regions lead growth in banking jobs
BBA data shows banking jobs grew fastest in the South West, West Midlands and Scotland in 2015. The number of bank and building society jobs in Scotland now account for 10% of the UK’s total banking workforce (The Times, £, p50). BBA Chief Executive Anthony Browne highlighted, “the overwhelming contribution the industry makes to communities across the UK, through jobs and apprenticeships.” Jonathan Reynolds MP, Labour’s Shadow City Minister commented that, “these figures reinforce the important contribution of financial services to our economy throughout the UK, not just in the Square Mile. Read the latest BBA’s Jobs Factsheet.
Warning over EU ‘currency nationalism’
Deputy Governor of the Bank of England, Sir Jon Cunliffe, has warned that the EU’s attempts to force Euro-denominated derivatives to be cleared within the single currency area risks splintering the global financial infrastructure (The Daily Telegraph, £ B8). Dr Craig Pirrong, Professor of Finance at the University of Houston, commented that this would, “increase systemic risk and substantially increase the cost of clearing” (City AM, p1).
Regulators keen to finalise Basel rules
Reuters (online) reports that Basel Committee Secretary General William Coen has said regulators are keen to finalise capital standards “sooner rather than later” ahead of the Committee’s meeting next week. However, approving any deal would be difficult until the Trump administration appoints a new top financial supervisor at the Federal Reserve, while regulators continue to disagree over the output floor element of the rules.Read more
Brexit impact on financial stability and jobs
The Guardian (p1) reports on interviews with senior bankers noting that the potential relocation of banking and related professional services jobs will threaten financial stability across the UK and EU. Secretary of State for Leaving the EU David Davis has said that it will take years to replace roles held by EU workers after Brexit (The Times, £, p1), while European Commission President Jean-Claude Juncker warned the UK will not be able to leave the EU “at a discount or at zero cost” (BBC News, online).
UK to adopt Criminal Finance Bill
Security Minister Ben Wallace has said that the Criminal Finance Bill will make it harder to hide and use the proceeds of crime ahead of the legislation being sent to the House of Lords, noting that the measures are major signal that the UK will take action on human rights abuses (The Independent, p19). The Financial Times (£, online) writes that the UK is the third country to adopt rules of this kind that allow the Government to freeze the assets of human rights violators, which may help counter the UK’s reputation as a “safe haven” for illegal assets.
MiFID II may inadvertently increase dark pool trading
The Financial Times (£, p22) reports on potential flaws in rules designed to increase transparency in equity markets. The rules may reduce the quality of public markets by encouraging more transactions via “dark pools” or through banks’ internal trading desks. The paper cites concerns from market participants that that this could damage volume and quality of liquidity on lit markets.Read more
Brexit without trade deal could cost UK £6bn
Leaving the EU without a trade deal could cost the UK up to £6 billion if it falls back on WTO arrangements, based on analysis of World Bank and UN international trade figures The Guardian (p1). The Daily Telegraph (£, p1) reports that the European Commission wants the UK to continue paying into EU projects until 2023, as part of a €60 billion leaving package. However, The Times (£, p8) reports that Germany is understood to be critical of this approach, and along with Spain, is likely to support the UK’s efforts to agree a new trade in parallel with negotiating agreements to leave the EU.
Gender pay gap to persist until 2041
A report by PwC suggests that it will take another 24 years to close the gender pay gap (Financial Times, £, p1). The largest pay differences recorded in 2015 were in financial services (34%). On average, women earned 18.1% less than their male counterparts. The Times (£, p40) reports that Justine Greening, Minister for Women and Equalities, will give evidence to a Parliamentary committee after the Government rejected many of the committee’s recommendations to narrow the gender pay gap.Read more
Lords to debate Brexit Bill
The House of Lords will today begin debating the Bill that will allow the Government to trigger Article 50. Cross-bench and opposition peers are expected to seek guarantees about the treatment of EU citizens in the UK (BBC News, online). The Times (£, p12) reports that a group of 92 business leaders, MPs, Lords and lawyers have called for MPs to be given powers to block an “unpatriotic Brexit” with an option to extend negotiations to secure a better deal. The Financial Times (£, online) writes that the EU’s negotiating team is unlikely to participate in trade talks until after Christmas 2017, as its immediate focus is on negotiating the UK’s exit arrangements and the rights of EU citizens.
Borrowing down ahead of Budget
The Guardian (£, p44) reports EY data predicting that the UK’s Office of Budget Responsibility (OBR) will say borrowing requirements are likely to fall by £3 billion to £65 billion ahead of the Budget in March. EY notes that the likely length of transitional and customs arrangements after Brexit are the biggest gaps affecting future forecasting (The Daily Telegraph, £, B1).
US Administration seeks greater control of Fed
The Times (£, p20) writes that the US Federal Reserve may face curbs on its powers as the US Dodd-Frank Act is reviewed. Ian Shepherdson, Chief Economist of Pantheon Economics, notes that, “there is no evidence that loan growth has been constrained by regulation”. The Financial Times (£, online) reports that 5-6 positions on the Fed’s Board of Governors will become vacant over the next 12 months, with prospective new appointments likely to depart from the Fed’s current approach to monetary policy and bank regulation.Read more
May says UK won’t “cherry pick” from EU benefits after Brexit
UK Prime Minister Theresa May has said that the UK will not seek to cherry pick elements of EU single market access, ahead of a meeting with French Prime Minister Bernard Cazeneuve today (Sky News, online). Writing in Le Figaro she committed to prioritising a reciprocal deal to protect the rights of UK and EU nationals working overseas, and highlighted the need for continued cooperation on security and defence.
US banks call for overhaul of AML regime
The Clearing House group of US banks has called for the US Treasury’s Financial Crimes Enforcement Network to be given oversight of banks AML compliance, while banks should investigate transactions based on specific concerns made by law enforcement agencies (Financial Times, £ online). Reuters (online) reports that the current system incentivises banks to file a high volume of low value reports on potentially suspicious transactions.
City supports reforms to corporate governance
The Daily Telegraph (£, B1) covers the BBA’s response to the Government’s consultation on reforms to corporate governance, noting that the banking sector believes that it may be too early for a further revision to the remuneration regime.Read more
French Senate sets out red lines for Brexit deal
A cross-party report by the French Senate has concluded that no deal with the UK is preferential to the UK securing a Brexit deal that leaves it better off than it is now (The Guardian, p9). The report describes freedom of movement in goods, people, services and capital as inseparable, noting that, “it must not be possible for Britain to segment access to the tariff-free single market for certain sectors” (The Independent, online only).
Customers willing to queue for up to three minutes at ATMs
Research by University College London has found that customers consider a wait of up to three minutes at ATMs and four minutes and twelve seconds at bank branches to be “reasonable”. They are unlikely to join a queue of more than six people (The Daily Telegraph, £, p3). The BBA’s Way We Bank Now report describes consumers’ changing interaction with banks.
Fall in EU nationals working in the UK
The Financial Times (£, p3) notes that the number of EU nationals employed in the UK fell by 19,000 to 2.2 million last quarter, driven by concerns over Brexit. The Chartered Institute of Personnel and Development’s Labour Market Adviser, Gerwyn Davies, commented that, “the figures . . . offer further evidence that Brexit has had a discernible impact on the allure of the UK as a place to live and work.” Reuters (online) reports that large banks are not scaling up the size of their trading teams, despite recent increased revenue.Read more
FCA consults on changes to listing rules
The FCA has proposed changes that would allow overseas companies to list in London without meeting the requirements on ownership and control required under the current regime for a premium listing. The consultation paper notes that “a highly international market like the UK should be at the centre of listing activity, supporting dynamic and emerging economies” (Financial Times, £, p18). City AM (p10) also reports that the regulator is considering measures to increase retail participation in debt capital markets. The consultation is available here.
UK leads on banking and technology developments
The Times (£, p39) writes that the UK is second only to South Korea in the development of Open Banking standards that allow third parties to provide retail banking services. The paper notes that innovation charity Nesta has launched a £5 million bank-funded prize to encourage the development of banking apps for small businesses. The Financial Times (£, online) notes that banks in other jurisdictions have adopted consumer-tech features, for example, “opening up Facebook branches, or allowing users to swap instant messages with their bank manager via Messenger.”
Yellen signals US rate rise
BBC News (online) reports that US Federal Reserve Chair Janet Yellen has said that it may be appropriate to raise interest rates ahead of the Fed’s next monetary policy meeting in March. City AM (p1) notes that this caused the dollar to rise against a number of other currencies, including sterling, while The Times (£, p35) writes that her comments were a, “thinly veiled warning” to President Trump that his economic plans will have a significant negative impact on the US fiscal position.Read more
Firms face cyber-threat staff shortage
Sky News (online) reports that 66% of British companies do not employ enough specialist staff to deal with cyber security risks. Chancellor Philip Hammond is expected to call for businesses to do more to guard against cyber threats at today’s launch of the National Cyber Security Centre, noting that although 65% of large firms reported a cyber-attack in the last year, only one in ten has an incident management plan (The Daily Telegraph, £, online).
Investors consider creating new US banks
The Financial Times (£, p16) reports that the US Federal Deposit Insurance Corporation is considering applications for six new bank charters, prompted by the prospect of stronger economic growth and lower taxes. Molly Flater, Chair of newly-opened US institution Blue Gate Bank noted that the outlook for banks of all sizes has improved, citing potential interest rate rises and more relaxed US regulation.
European Commission raises UK GDP projections
The European Commission has revised its growth forecast for the UK up to 1.5% this year, but warned of a likely slowdown in business investment driven by uncertainty over the post-Brexit deal in 2017 (The Times, £, p38). Meanwhile, City AM (p7) notes that UK firms relying on trade agreements between the EU and third countries may need to wait until equivalent deals are in place after Brexit.Read more
FTSE 100 companies consider measures to curb executive pay
One in ten FTSE 100 companies may replace long-term incentive schemes with share-based bonuses or extend vesting dates in response to investor demands to reduce executive pay (Financial Times, £, p1). The Investment Association has called for the introduction of a “sin bin” for companies that repeatedly fail to engage with shareholders on executive pay, The Sunday Telegraph (£, online). The Sunday Telegraph also notes that, “as well as the “sin bin”, some institutions are expected to push for radical reform of Britain’s stock exchange listing rules”.
85% of banks ‘do not expect’ to move staff out of the UK following Brexit
Data from EY shows that the majority of banks do not plan to make major changes to UK staffing following Brexit, although 15% of 222 firms surveyed did expect to move some staff (The Daily Telegraph £, B3).
Commenting on the findings, EY’s UK Financial Services Leader Omar Ali said, “The number of financial services companies who have publicly said that they are making wholesale changes to their London operations is relatively small given the huge number of firms that comprise the sector”.
Banks face barriers to adopting cloud technology
Banks are turning to cloud technology to help meet demand for more innovative digital products and services, but face challenges around data security and regulation according to a report by the BBA and Pinsent Masons (City AM, p15). The BBA has established a working group to help address these issues. Read the full report is here.Read more
Dombret warns on equivalence and Euro clearing
Andreas Dombret, who sits on the board of Germany’s Bundesbank, has warned that a post-Brexit deal based on equivalence would be a poor substitute for passporting, noting that, “equivalence decisions are reversible, so banks would be forced to adjust to a new environment in the event that supervisory frameworks are no longer deemed equivalent” (BBC News, online). He also said that without oversight by the ECJ, the bulk of Euro clearing activity was likely to move into the Eurozone.
CML data shows repossessions at record low
Housing repossessions have fallen to their lowest level for 35 years due to record low interest rates (The Times, £, p44). Data from the CML Lenders also shows that mortgages in arrears of over 2.5% fell by 7% last year. The Financial Times (£, online) reports that Paul Smee, CML Director-General warned that customers, “need to be ready for a time when the outlook may not be so benign, with pressure on real incomes increasing and as interest rates begin to move upwards again.”
Carney calls for BoE clearer communication
Bank of England Governor Mark Carney says that winning back public trust in banking will require the Bank to engage with a wider group of stakeholders using less technical language (City AM, p3). Speaking at a Bank event on diversity, he said: “to communicate to both the City and the country, the salon and the suburb, we need to create content that engages different audiences.”Read more