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.
Low demand for Bank liquidity auction
The Guardian (p18) reports that UK banks took up just £370 million of the second special loan auction offered by the Bank of England ahead of tomorrow’s European Union referendum. Demand for the facility fell from £2.4 billion last week. The low takeup was described by one banker as a sign of increasing confidence in the financial markets. City AM (online only) notes that yesterday’s total was the lowest amount in a single offer in 18 months.
S&P highlights sovereign debt “doom loop”
The Telegraph (B3) reports that Europe’s banks have doubled their holdings of their domestic government bonds since 2008 despite the sovereign debt crisis, according to Standard and Poor’s. The FT (£, p19) reports that S&P research shows that Europe’s 50 biggest banks would have to redeploy €1.7 trillion in sovereign debt if regulators chose the hardest method of separating banks from the “doom loop” tying them to their governments. The European Commission and European Central Bank have both said that they are considering ways to introduce a capital charge for banks holding sovereign debt, which has been historically seen as risk-free.
Housing transactions slump
The Telegraph (B3) reports that the number of UK home sales in May was nearly 14 per cent lower than a year earlier amid uncertainty around the EU referendum, according to figures published by HM Revenue and Customs. Monthly property sales for 2016 so far reached a peak in March at 171,220 ahead of the introduction of an increase in stamp duty. Richard Sexton, Director of chartered surveyor Esurv, said: “Too many first-time buyers are struggling to get a foothold on the property ladder as saving for rising deposits is still an almighty challenge.”Read more
MPs call for fines for cyber-security failures
The Culture, Media and Sport Select Committee has recommended companies should be fined if they fail to guard against cyber-attacks (Sky News). The MPs also recommended that CEOs’ pay should be linked to robust cyber security; that it should be easier for consumers to get compensation if they are the victim of a hack; and that the Government should conduct a public awareness campaign about online and telephone scams or phishing. The Committee’s Chairman Jesse Norman said: “Failure to prepare for or learn from cyber-attacks, and failure to inform and protect consumers, must draw sanctions serious enough to act as a real incentive and deterrent” (Telegraph, B1).
Call for vulnerable people to delay payments
Customers in vulnerable circumstances should be allowed to place a delay on large payments leaving their accounts to protect them from fraudsters, according to a new report (BBC News). The Chartered Trading Standards Institute, which represents officers, argued that a carer or family member should be sent a text alerting them to the planned payment. A spokeswoman for Payments UK said: “All the banks offer different services and products to help vulnerable people manage their finances, and we would urge a customer to speak to their bank if they want to find out more.”
Mortgage costs fall to record low
The Times (£, p12) reports that cost of home loans has fallen to a record low, with one bank offering a fixed-rate mortgage below one per cent for the first time ever. Rachel Springall, finance expert at data firm Moneyfacts, said: “We have yet to see the end of the mortgage rate war and expect other big players will likely follow suit with their own top deals to grab the spotlight.” (Daily Mail, p28). At the peak of the financial crisis eight years ago in June 2008, a typical two-year mortgage cost 6.75 per cent.Read more
CMA retail banking investigation criticised
The Times (£, p35) reports that big banks have criticised the Competition and Markets Authority retail banking market investigation, claiming that the inclusion of vouchers and other benefits skew the findings. Two submissions argue that the CMA has got its estimates wrong on how much people can save from switching accounts as a result of including non-cash incentives (Telegraph, B3). The CMA, which will publish its final report in early August, said: “We will take into account every submission we receive.”
FCA shifts focus from firms to individuals
The Daily Mail (p67) reports that fines levied against firms by the Financial Conduct Authority totalled £880 million in the year to March 31, compared with £1.4 billion the previous year. Research from law firm Clyde & Co also found that fines levied against individuals more than doubled during the same period (Times, £, p38). Clyde & Co said lower corporate fines could be down to banks putting legacy issues behind them, as well as a shift to holding individuals to account for misconduct following the introduction of the Senior Managers Regime.
Which? highlights ISA rate cuts
The Guardian (p18) reports that Which? has claimed that too many Isa providers are “scissor-happy” when it comes to cutting savers’ rates. Harry Rose, Which? money editor, criticised banks for “paying truly woeful rates of interest”. A spokesman for the British Bankers’ Association said: “These have been frustrating years for savers. The Bank of England’s base rate has remained at a record low for several years and while this has been good news for borrowers it has fostered a low interest rate environment, which has not been easy for many savers to bear. During this period banks have made it easier for savers to find the right products for their needs.”Read more
Central banks make plans to avoid credit crunch
The Telegraph (B5) reports that the Bank of England and the European Central Bank are working closely with the central banks of the US, Japan, Switzerland, Sweden, and Canada to prevent markets seizing up in the event of the UK leaving the European Union. Ewald Nowotny, Austria’s Central Bank Governor and an ECB board member, said: “We have taken the necessary precautionary measures to meet liquidity needs. We have assured that there will be no liquidity bottlenecks, either among English banks or European banks, if it becomes necessary.” The newspaper states that the ECB will keep currency swap lines open to ensure that there is sufficient liquidity.
ECB urges Basel Committee to respect existing capital requirements
ECB Governing Council Member Francois Villeroy de Galhau has called on the Basel Committee to respect earlier commitments from central banks and the G20 to not significantly increase overall capital requirements for banks (Reuters). Mr Villeroy de Galhau said: “At this stage, the current technical proposals made by the Basel Committee do not appear to fully respect this pledge […] The finalisation of Basel III should offer banks a long-term and clear framework.” The article also cites a letter from European Banking Federation that warns new international rules could require European banks to raise hundreds of billions of euros in fresh capital.Read more
Carney to outline vision for fintech
City AM (online only) reports that Mark Carney, the Governor of the Bank of England, will focus on fintech and distributed ledger technologies in his speech at the annual Mansion House Bankers’ Dinner tonight. In February, Mr Carney wrote a letter in his capacity as head of the Financial Stability Board calling on central banks and regulators to assess the implications of fintech’s growth on financial stability. Susanne Chishti, Chief Executive of Fintech Circle, said: “The fact the Mark Carney has chosen fintech as topic of his Mansion House speech is an indication that it has become mainstream and that the Bank of England recognises the huge opportunity of fintech to modernise [the] UK’s financial services industry.”
Challenger banks criticise CMA proposals
A number of challenger banks have warned that the Competition and Markets Authority’s provisional remedies for the retail banking market do not go far enough (Reuters). Virgin Money Chief Executive Jayne-Anne Gadhia said they were a “missed opportunity” for customers and will fail to clear up confusion about how much a “free” current account actually costs. Meanwhile, Co-operative Bank’s response said: “The proposed implementation approach for some remedies could make the market less accessible for new entrants.” More than 40 banks, financial services firms and consumer groups responded to the CMA’s latest consultation.
FCA backs PPI deadline
The Times (£, p37) reports that the Financial Conduct Authority backed a two-year deadline for new claims over payment protection insurance compensation against the view of its own experts. The newspaper cites internal FCA documents showing that staff raised concerns the deadline would be inadequate unless banks wrote directly to customers about their potential PPI claim. Claims management companies have threatened a judicial review against the FCA if it does go ahead with a cut-off. The FCA has yet to make a final decision on the proposed PPI deadline.Read more
Sir John Vickers criticises Bank of England reforms
Sir John Vickers has claimed that the Bank of England’s faith in new bank failure rules may leave the financial system short of equity and vulnerable to shocks in a crisis (Bloomberg). He argued that they should concentre more on preventing failures in the first place by demanding banks hold more equity capital. Sir John added: “We’re talking about very, very early days and I simply do not believe it [the capital framework] can work as well as the Bank of England believes. I hope it will, but I just don’t believe it will, with the best will in the world.”
Iran calls on US to encourage banks to do business
Iran’s Foreign Minister Mohammad Javad Zarif has urged the United States to do more to encourage banks to do business with the country in the wake of the nuclear agreement earlier this year (Reuters). Mr Zarif said that the US “on paper has removed all the sanctions but more needed to be done to remove their “psychological remnants”. He added: “On the banks, I believe it is important for everybody to realise that an agreement will be sustainable if everybody feels they are making gains from the agreement.”Read more
Eurozone banks face additional scrutiny
Daniele Nouy, Chair of the Supervisory Board of the European Central Bank, has warned that Eurozone banks may face added scrutiny and supervisory measures if they fail to meet non-mandatory ‘Pillar 2’ guidance on their capital levels (Reuters). Speaking to the European Parliament’s economy committee, Ms Nouy said: “Failing to meet Pillar 2 guidance is not in legal terms a breach of capital requirements. But still, banks need to take it seriously: failing to meet Pillar 2 guidance would lead to intensified supervision and institution-specific measures designed to re-establish a prudent level of capital.” She added that capital levels for banks are well above regulatory requirements and investors’ main concerns are weak profitability and high cost of capital, not capital ratios.
Tax tops worries for FTSE 100 companies
The FT (£, p4) reports that tax, terrorism, regulation and Brexit are the top areas of concern for FTSE 100 companies. Analysis of annual reports found that almost a third of FTSE 100 companies reported that tax was a significant risk, with one in 10 specifically highlighting new international rules on base erosion and profit shifting (BEPS). New rules being introduced by G20 countries to tackle tax avoidance are expected to add an average of five per cent to the tax bills of UK businesses.Read more
Investment banking employees shift to other sectors
The Daily Telegraph (B4) reports that an increasing number of investment bankers are moving across to other sectors in the wake of recent cutbacks. It notes concerns that recent job losses across investment banks may be structural, rather than cyclical. Recruitment firm Morgan McKinley estimates that banks’ revenues from trading bonds, currencies and commodities have fallen 49 per cent in the past five years and headcount has fallen 33 per cent.
Focus on gender gap across financial services
The FT (£, p2) reports that two separate studies have found the financial services industry is making slow progress in appointing more female executives. A report from Oliver Wyman found that women make up one-fifth of boards and 16 per cent of executive committees in financial services, while a separate paper from New Financial found that just 14 per cent of executive committee members in UK financial services companies are female. Rebecca Emerson, UK Head of Oliver Wyman, said: “There’s been slow progress in getting more women leaders in financial services. At the current rate it will take a further 30 years [by 2048] for executive committees to reach 30 per cent female representation.”
The BBA published a report on Diversity and Inclusion in Banking last November.
UK facing ‘digital skills crisis’
The Government needs to take urgent action to deal with the UK’s digital skills crisis, according to MPs on the House of Commons Science and Technology Committee (BBC News). It found that 12.6 million adults lack basic digital skills, while 5.8 million have never used the internet at all. The report highlighted concerns that digital exclusion could undermine the UK’s productivity and competitiveness. In response a Government spokesperson said: “Our Digital Strategy, to be published shortly, will set out how we will help employers and individuals access the tools they need to power our digital economy. This will make sure we are well placed to remain a tech leader in Europe.”Read more
Popularity of wearable technology payments set to rise
The Times (£, p21) reports that payments made by wearable technology such as smartwatches, wristbands and key fobs with embedded microchips are set to surge over the next five years. Samantha Blackman, of Barclaycard, said: “Wearables and fashion are the new frontier and we expect their use to grow rapidly over the next couple of years. It took a while for contactless cards to take off and we are near a similar tipping point with wearables.” The newspaper also notes that spending with contactless cards more than trebled last year to almost £8 billion.
Bankers concerned over digital risks
A survey from Accenture has found that more than three quarters of senior executives at global banks believe their institution is more exposed to risks from digital developments than they are able to handle (FT, £, p20). Some 85 per cent said that new digital products and services are increasing data-handling concerns. Alan McIntyre, Head of Accenture Banking said: “Banks have much work to do to reassure customers that their best interest is top of mind and their data are being handled ethically and securely. The first step to securing ‘digital trust’ is to be transparent and clearly communicate what data are being collected and for what purpose, and then use that data for the primary purpose of offering customers benefits tied to the data being shared.”
Banks shift jobs away from leading financial centres
The FT (£, p20) looks at how banks are increasingly shifting jobs and operations away from leading financial centres such as London and New York to other cities such as Lisbon and Warsaw. Bill Michael, Global Head of Banking and Capital Markets at KPMG, said: “Corporate and investment banks have been offshoring for many years, but what we are seeing now is the intensity has accelerated because of the economic conditions and also the digitisation of the industry.” New York has lost 27,000 financial services jobs in the past five years, leaving it with 331,000 positions, and London has lost 15,000, leaving it with 358,000 posts, according to estimates provided last month for the FT by consultancy Boyd.Read more
Banks consider options amid negative interest rates
The FT (£, p1) writes that Eurozone and Japanese banks are rebelling against negative interest rates imposed by their respective central banks. One leading German bank is reportedly considering storing cash in vaults to get around the European Central Bank’s policy. Adalbert Winkler, Professor at the Frankfurt School of Finance and Management, said: “The more central banks think that they can violate the zero-bound, the more likely it is that banks will look at ways to limit their costs. And that means they will hold more cash if they can find efficient means to do so.”
House prices set for ‘short-term’ dip
The Telegraph (B3) reports that UK house prices look set to fall for the first time since late 2012, according to a poll by the Royal Institution of Chartered Surveyors (Rics). Demand has stalled amid uncertainty around the European Union referendum and the introduction of a stamp duty surcharge in April. Adam Challis, Head of Residential Research, argued that the dip will be short-lived, saying: “While there has been slower growth forecasts for 2016, there is a stable backdrop to support housing demand with little upward pressure on lending rates.”
European Commission unlikely to extend loss absorbency rules
The European Commission has stated that it has no plans to extend global rules on how failed banks absorb losses to European lenders beyond big banks (Reuters). Under global rules set by the Basel-based Financial Stability Board, the world’s 30 top banks must raise money through long-term bonds in order to be able to cover from 2019 the costs of their being wound up if they fail – known as total loss absorbing capacity (TLAC). An unnamed EU official said: “An extension of TLAC to domestic systemically important banks at this stage is unlikely.” Reuters reports that Germany and the UK have been pushing for TLAC requirements to be restricted to the very biggest banks.Read more