The BBA is now integrated into UK Finance. Please go to www.ukfinance.org.uk for new content and updates from UK Finance.
Material published by BBA prior to 1st July 2017 is still available on this website.
From 1 July 2017, the finance and banking industry operating in the UK will be represented by a new trade association, UK Finance. It will represent around 300 firms in the UK providing credit, banking, markets and payment-related services. The new organisation will take on most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association.x
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.
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”.Read more
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”.Read more
‘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”.Read more
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).Read more
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”.Read more
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.Read more
‘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”.Read more
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”.Read more
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.Read more
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”.Read more