17th November 2015

BBA Brief – 17 November 2015

Treasury Select Committee Chair reiterates ring-fence reforms

There is widespread coverage of Treasury Select Committee Chairman, Andrew Tyrie’s speech last night at City law firm Allen & Overy. He called on regulators to “not give in to special pleading from banks in implementing the reforms introduced as a result of the financial crisis” according to the FT (£, p6). Tyrie endorsed ring-fencing reforms and backed the “electrification” provision within the Banking Reform Act, which allows for full separation of a particular bank, if necessary.

He also said: “It has become clear that you can’t separate the reforms required to ensure that banks are resilient and resolvable from the reforms required to improve standards.” He suggested Banks should be forcibly broken up if they try to game the “ring-fencing” rules.

Fellow Treasury Select Committee member, Wes Streeting, Labour MP for Ilford North responded to the speech in City AM (p1), saying “some of the lessons that were drawn from the banking crisis are no longer taken with the seriousness that they deserve. We’ve got to strike the balance between unhealthy public debate that simply amounts to banker bashing with the understandable concerns that the public still have about the sustainability of the banking sector.”

Research arms prepare for MiFID deadline

According to the FT (£, p19), banks are working behind closed doors to meet a deadline for their research divisions to become compliant with MiFID 2. The new rules — expected to come into force in 2018 after the European Commission proposed a year-long delay — will change historic pricing for trading and research in the name of transparency. The paper reports that clients who want research will have to ask for it and pay for it under the new system, which industry sources anticipate will put downward pressure on demand.

The final draft of the rules could ban banks from subsidising lossmaking research divisions, which means that institutions are now focused on analysing how their clients use and value research. “While a delay would give everybody more time to iron out details, it’s unlikely to affect broader strategic thinking among research providers or consumers,” says Alan MacDonald Nomura’s Head of International Equity Research. A Research Manager at a large US bank told the paper, “We’ve suffered because of the inherent pricing model. Clients have tended to arbitrage it. We’ll probably get a better deal now.”

Government to double spending on cyber technology

According to the Independent (p11), Chancellor George Osborne will announce today that £2bn will be invested by the Government to create the country’s first “cyber force” with the express purpose of combating cyber threats. The new National Cyber Centre will be based at GCHQ and is expected to create hundreds of new jobs dedicated to tackling cyber-attacks against the UK.

Whilst the majority of work will be directed against state sponsored attacks, the effort will also address the threat of cyber terrorism. He is expected to say “When we talk about tackling Isis that means tackling their cyber threat as well as guns, bombs and knives.” Speaking at the Lord Mayor’s annual banquet last night, Prime Minister David Cameron added that “economic security and national security go hand in hand” (City AM p4).

Today’s diary

House of Lords: returns from Autumn Recess

Treasury Select Committee: hearing on the Prudential Regulatory Authority

House of Commons EU Scrutiny Committee: hearing on the UK Government renegotiation of the UK’s EU membership

House of Commons: Immigration Bill in Committee Stage

ONS: monthly inflation figures October

ONS: monthly house price figures September

Chancellor George Osborne to speak at GCHQ on cyber risks

Latest from the BBA

In the next few weeks The BBA eLearning Academy will be releasing an eLearning module on Vulnerable Customers, but you can preview some of the content here . For a full demo of this and other eLearning courses on Conduct Rules, SMR and Risk, please contact philip.allen@bba.org.uk

Adam Cull, Senior Director, Financial Policy and Operations, blogs about the Bank of England’s supervisory statement on contractual stays in financial contracts governed by third country law.

BBA Policy Advisor Ariane Poulain discusses why it is time that we break one of Britain’s last taboos – talking about money.

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Stat of the Day

17 per cent – the fall between 2007 and 2014 in the number of EMEA analysts publishing research at the 12 top banks (Coalition, FT, £, p19)

In brief

The Times (£, p44) reports that women working in finance “earn half as much as men” due to outright sexual discrimination, poorer negotiating skills, unwillingness to commit to longer hours and the “motherhood penalty” according to new pay data published by the UK Commission for Employment and Skills.

The Daily Telegraph (B1) reports concerns of compliance officers about going to jail if they fail to stop colleagues offending, with 54 per cent saying they would leave the industry if an opportunity arose. LexisNexis® Risk Solutions are today hosting an event on Future Financial Crime Risks, with support from the BBA.

The European Banking Authority is expected to decide whether it will apply rules on pay and bonuses to include a wider range of financial companies next month. The Wall Street Journal (Europe, p5) reports that small banks and investment firms are braced to cap or change the structure of bonuses for their highest earners.

European financial regulators have issued draft rules on the sale of retail investment products that require fund managers to reveal hidden fees, an issue that has already caused a rift in the industry (FT, £, p7).

Eurozone inflation was revised up to 0.1pc last month, but remains below the European Central Bank’s target. As a result many analysts expect the ECB to ease monetary policy (The Times, £, p47).

Dominic Thorncroft, Executive Chairman of the Association of UK Payments Institutions, comments in the Daily Telegraph (B4) on how the tightening of rules on money laundering is forcing hundreds of bureaux de change and money-transfer shops across the UK to close.

The Wall Street Journal (Europe, p7) previews US banking regulatory battles this year, saying the two most significant changes under consideration on Capitol Hill will be easing supervision requirements for banks with $50 billion in assets and adopting bank-like regulation for asset managers.

TechUK’s survey of its members finds 71 per cent of British tech firms believe the country should remain part of the EU but that reforms need to be made. Just 9 per cent want to leave (City AM, p9).

In a Leave.eu survey of hundreds of small business entrepreneurs, 31 per cent cited the influx of unskilled migrant workers and 29 per cent said red tape from Brussels were the driving factors behind their support for Brexit (FT, £, p6).

The Institute for Chartered Accountants in England and Wales (ICAEW) has asked Chancellor Osborne to “not introduce anything that will impact businesses” in the CSR fiscal update due next week (City AM, p9).

Retirement Advantage, specialist advisers, released figures yesterday indicating that people not shopping around for their annuities over the past six months are set to collectively lose out on £104m over the course of their retirement (City AM, p15).

What the commentators say

City AM (p.2) editorial comment argues the case for ring-fencing UK banks, in order to end ‘too big to fail’ has still has not been made. Instead of simply delivering a clear-cut, legally robust system for banks to fail, authorities have muddied the waters, combining this crucial issue with their desire to correct “conduct failings” and influence how banks are managed.

In his Guardian column (p29), Nils Pratley argues that Andrew Tyrie issued a “necessary counterblast to the grumblers” but it’s alarming that Tyrie felt the need to speak out, he says.

Oliver Kamm, Times leader writer (£, p43) argues that Corbyn’s people’s QE is a terrible idea, and that more inflation may be just what we need to boost the economy.

Shaun Port, Chief Investment Officer at Nutmeg, looks at whether ‘Abenomics’, the policies of the Japanese Prime Minister to stimulate its economy are failing (City AM, p24).

If you have five minutes…

The FT (£, p11) has published a long read on the impact of high levels of debt in developing economies, driven by QE.

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