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.
CMA urged to shift focus from bank account switching
Caroline Barr, a Member of the Financial Services Consumer Panel, has said that the Competition and Markets Authority should drop its focus on making it easier for customers to switch (FT, £, p2). Speaking at a session with the Treasury Select Committee, Ms Barr said: “We have a market where consumers don’t switch — for really rational reasons actually. Competition should be working with the grain of how consumers behave, not trying to get tens of millions of people to change their behaviour.” Paul Lynam, Chief Executive of Secure Trust Bank, also criticised the CMA for failing to tackle structural issues such as capital requirements and access to the payments system (Telegraph, p8).
Tyrie calls for greater transparency from Bank of England
Andrew Tyrie, Chairman of Treasury Select Committee, has written to Andrew Bailey, Chief Executive of the Bank of England’s Prudential Regulation Authority, saying he wants a detailed explanation of how the regulator judges whether to publish information provided by banks (Reuters). In an exchange of letters, Mr Tyrie wrote: “If more supervisory information were made public, the market mechanism for imposing good behaviour on banks might work better, possibly much better […] The case for greater disclosure is now strengthened, not weakened, by the greatly increased intrusiveness and complexity of the supervisory process and of financial regulation” (FT, £, online only). Mr Bailey’s response stated that the PRA is working with the EU to reduce the difference between the internal risk models used by high street lenders and the standard ones set by regulators for challenger banks.
EU lenders warned about ‘doom loop’ costs
The FT (£, p18) reports that credit rating agency Fitch has warned European banks would have to raise up to €170 billion of additional capital or sell almost €500bn of sovereign debt if regulators take forward plans to break the “doom loop” tying lenders 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. José Manuel González-Páramo, Head of Regulation at Spain’s BBVA, said: “We don’t know what is the end game of this, but it will certainly require more capital, in particular to some banks using business models that have been very lax in the way they have calculated their capital needs.”Read more
Plans to change lenders’ risk models criticised
The FT (£, p19) reports that the Institute of International Finance (IIF) has warned banks would be encouraged to lend more to weaker borrowers and take risks if regulators restrict banks’ freedom to use their own capital models. In a letter to the Basel Committee on Banking Supervision, the IIF’s Regulatory Affairs Chief Andres Portilla warned “about the bluntness of the approach that the committee proposes to replace these [existing internal models] with.” Internal models are used by banks to determine their risk-weighted assets, which in turn play an important role in determining their capital ratios.
Traders to work on EU referendum night
The Guardian (online only) reports that banks are planning to keep traders and analysts in overnight after voting in the UK’s EU referendum closes on 23 June. They want to monitor markets and be able to respond to major swings in foreign exchange and bond markets. The newspaper also notes that the Bank of England will next week hold the first of three special funding operations intended to ensure banks have sufficient liquidity in the days surrounding the vote.Read more
Banks reassure customers over EU referendum
The FT (£, p1) reports that high street banks are training staff in branches and call centres on how to reassure customers ahead of the referendum on European Union membership (FT, £, p1). The newspaper states that one chief executive said there had been a rise in questions over what a Brexit would mean for sterling as the summer holidays approach. Giles Williams, a Partner at KPMG, said: “What looked like early-stage plans in January has now moved to detailed contingency strategies on what to do in event of scenarios leading up to and after the referendum, such as what might happen in the market and how this might lead to challenges around retail bank customers.”
SWIFT warns over further hacking incidents
Gottfried Leibbrandt, CEO of SWIFT, has warned that further security breaches of the messaging service may occur as fully upgrading cyber defences may take years (Bloomberg). Mr Leibbrandt said: “We don’t think this is going to be solved overnight, so we’ll be looking for a number of quick wins to improve things in the near term.” He also said that users without robust security standards may be kicked off the service.Read more
SWIFT warns banks over security
The FT (£, p17) reports that Gottfried Leibbrandt, Chief Executive of SWIFT, has warned that banks with the weakest cyber defences could be kicked off the system. Mr Leibbrandt said: “The days when you needed to break into a bank and carry guns and blow torches are over. You can now rob a bank from just your own PC and that does change the game completely.” He also added that SWIFT is talking to regulators — including the Bank for International Settlements and the Financial Stability Board — about making its security requirements part of their global supervisory standards.
New plastic banknote unveiled
The Bank of England has revealed the UK’s first plastic polymer banknote, the new fiver featuring Sir Winston Churchill (Guardian, p6). Mark Carney, Governor of the Bank of England, said: “It is stronger than paper and can better withstand being repeatedly folded into wallets or scrunched up inside pockets. Polymer notes can survive a splash of Claret, a flick of cigar ash, the nip of a bulldog, and even a spin in the washing machine afterwards to boot.” Polymer notes last two-and-a-half times as long as the old notes and will save the Bank up to £100m in replacement costs (City AM, p4).
Fed to toughen stress tests for lenders
The US Federal Reserve has confirmed plans to toughen annual stress tests for the biggest, most complex banks (FT, £, p18). Lead banking supervisor Daniel Tarullo said that the eight banks classed as global systemically important financial institutions will be required to incorporate capital surcharges into their minimum capital thresholds in the tests. Fed Governor Jerome Powell said the move would make the big banks ‘fully internalise’ the risk they pose to the economy (Wall Street Journal, £, p1).Read more
Investment banks’ hopes of big cost savings ‘a pipe dream’
The FT (£, p19) reports that Boston Consulting Group has warned that transformational cost savings are a “pipe dream” for investment banks as they struggle to cover their cost of capital. In a briefing with investors last week, BCG’s Philippe Morel and Will Rhode argued that only a small number of investment banks would ever meet their cost of capital due to post-crisis regulation. BCG said: “Reducing costs by outsourcing to utility providers is still a pipe dream due to governance issues.” They also stated that blockchain “is still in its infancy and cannot be counted on for an imminent solution to realise efficiencies”.
Mortgage lending growth slumps
The Times (£, p43) reports that mortgage lending in April rose at its slowest pace since the height of the 2012 Eurozone crisis. Figures from the Bank of England showed that net mortgage lending in April rose by £281m, compared to a £7.4bn increase in March. The number of approvals for mortgages in April also fell to a two-year low. Samuel Tombs, Economist for Pantheon Macroeconomics, said: “The adverse impact of uncertainty about the outcome of the EU referendum can be seen clearly across all the latest lending data.” The Daily Mail (p2) adds that homebuyers in April paid the lowest interest rates ever on their mortgages.
Tyrie calls for consumer safeguards for P2P market
The Times (£, p42) reports that Andrew Tyrie, Chairman of the Treasury Select Committee, has asked the Bank of England and the Financial Conduct Authority to check if more protections were needed in the peer-to-peer lending market for consumers. Mr Tyrie said: “The sector’s ability to see through an orderly decline should be considered sooner rather than later” (Reuters). Customers of peer-to-peer lending sites are now allowed to put their P2P investments inside tax-free ISAs, but unlike bank deposit accounts these are not covered by the Financial Services Compensation Scheme.Read more
Fraudsters shift focus from banks to other organisations
The number of ‘phishing’ scam emails from fake banking websites has declined as fraudsters increasingly seek to mimic a wider range of organisations (BBC News). Financial Fraud Action UK said that 16,462 fake bank websites were detected last year, compared with a peak of 256,641 in 2012. Katy Worobec, Director of FFAUK, said: “Banks have worked hard to tackle the problem of phishing emails. However, intelligence suggests that fraudsters are still using phishing emails to steal people’s personal and financial details by claiming to be other organisations such as government departments, utility companies, technology companies or major retailers.”
Banks help families manage their loved ones’ finances
Money Mail (p41) reports that the BBA has set up a working group with major banks to investigate ways to improve how power of attorney customers are treated. The group will consult with charities and consumer groups to see how the industry can increase transparency, improve training and bring in standard processes to reduce confusion. It intends to work closely with the Office of the Public Guardian, which registers power of attorney documents, and equivalents in Scotland and Northern Ireland. Power of attorney allows customers to specify who you would want to manage your financial affairs should you be unable to do so later in life. Some 1.2 million people in the UK have now registered one.
Lack of trust poses threat to banks amid technological change
Sir David Walker, the former Chairman of Barclays, has claimed that British bankers have not yet convinced the public they can be trusted again (Telegraph, B3). In a speech at the Chartered Institute for Securities & Investment, Sir David said: “Despite all the efforts at reform that have been initiated and are currently in train, trust in banking is still at a very low level.” He argued that this lack of trust could put banks at a disadvantage in the face of growing competition from innovative new start-ups.Read more
Banks streamline global operations
The Wall Street Journal (£, p1) reports that international banks are retreating from a number of countries around the globe as they focus on core markets. A McKinsey & Co. review of 10 leading banks found that the global footprint of those lenders shrunk to 55 countries last year, down from 65 countries in 2008. Former RBS Chief Executive Sir George Mathewson said: “I don’t believe in universal banking. The cultural risks are just too great.” JP Morgan Chase CEO is quoted defending the universal banking model, but accepted that the bank had cut business with many clients around the world because of anti-money-laundering requirements.
Big Issue trials contactless payments
The Big Issue is working with banks and technology companies to develop a contactless payments system for homeless individuals who sell the magazine (Telegraph, p7). Sales of the Big Issue have declined from nearly 300,000 in 2001 to less than 125,000 today as fewer people carry cash in their pockets. The move will also give homeless people the chance to have a mainstream bank account, a facility they usually struggle to obtain due to not having a home address.Read more
Bank of England outlines new capital rules
The Bank of England has rejected criticism from Sir John Vickers that it has watered down its approach to capital requirements for the UK’s banking system (Guardian, online only). The Bank’s Financial Policy Committee yesterday set out its final capital rules for ringfenced institutions and broadly held firm with its original proposals, with the exception of a slight modification to how the so-called ‘systemic risk buffer’ interacts with a similar international one from the Financial Stability Board (FT, £, p4). In February, Sir John stated that the Bank had weakened the original proposals of the Independent Commission on Banking that he chaired.
BBA publishes High Street Banking statistics
Sky News reports that the number of mortgage approvals slipped to its lowest level in over a year following the introduction of a stamp duty surcharge in April, according to the BBA’s monthly High Street Banking statistics. A total of 40,104 mortgages were approved in April, down from 43,854 in March. Dr Rebecca Harding, Chief Economic Advisor at the BBA, said: “As expected, growth in mortgage lending has fallen back sharply on last month, proving that March’s results were just a stamp duty spike. Net mortgage borrowing is nevertheless three per cent higher than a year ago” (City AM, online only). The Telegraph (B1) reports that spending on credit cards was a record £9.6 billion last month.
New conduct code for forex traders
The Bank for International Settlements has set out a new global code for traders as part of efforts to restore public confidence in the foreign exchange market (FT, £, p15). Among the recommendations is that traders must “not communicate false information” and “not start rumours with the intention of moving markets or deceiving other market participants” (Telegraph, B5, paper only). Guy Debelle, Chairman of BIS’s foreign exchange working group and Assistant Governor of the Reserve Bank of Australia, said: “This lack of trust has been evident both between participants in the market, but at least as importantly, between the public and the market.’Read more
Bank of England defends regulatory regime
Martin Taylor, an external member of the Bank of England’s Financial Policy Committee, has insisted that the regulatory regime for banks has not been relaxed (Telegraph, B4). Mr Taylor stated that capital requirements for the sector had progressed “in a more or less straight line” despite criticism from Sir John Vickers. He added: “The emerging settlement on bank capital is intended to correct the chronic undercapitalisation of the banking sector at the time of the financial crisis and achieve resilience without imposing unreasonable transitional costs at a time of weak global growth.”
Customers could foot bill for fraud
The FT (£, p15) reports that policymakers are considering plans that could require customers to cover the cost of fraud. The Government, Bank of England, GCHQ and banks are in discussions over proposals that could mean individuals or companies with lax online security are frozen out of banking services amid concerns that customers using outdated software are a weak link in the UK’s cyber defences. Adrian Leppard, former Commissioner of City of London Police, and now a Director at cyber consultancy Templar Executives, said: “It seems reasonable that customers should take the most basic steps to prevent crime and that banks should only have to recompense those who have done so. It is also a good step in encouraging a necessary culture shift that requires society to take such steps.”
Payday loan complaints rise
BBC News reports that the Financial Ombudsman Service has seen the number of complaints about payday loan companies increase by 178 per cent in the year to March. There were also 188,712 complaints about payment protection insurance during this period, a drop of eight per cent on the previous year. The Telegraph (B4) notes that cases involving packaged bank accounts more than doubled to 44,000. Chief Ombudsman Caroline Wayman said: “[…] we mustn’t lose sight of the lives and livelihoods behind every complaint we resolve. That’s why preventing mistakes of the past from happening again will help restore trust and fairness in financial services.”Read more
FCA report focuses on derisking
UK banks have been told by the Financial Conduct Authority that anti-money laundering rules should not be used “as an excuse for closing accounts when they are closing them for other reasons” (Guardian, p21). A report from the FCA highlighted how compliance costs for banks have risen significantly in recent years, even as accounts for high risk individuals and organisations had been closed (FT, £, online only). The FCA also emphasised that banks were subject to competition law which should be taken into account when closing accounts.
Challenger banks criticise CMA
The leaders of eight challenger banks have signed an open letter to the Competition and Markets Authority that criticises its investigation into the retail banking market (Times, £, p43). It states that “the most effective and sustainable way to foster competition across the board in the UK banking market is to create a truly level competitive playing field, especially in respect of capital and funding.” The signatories argue that the ‘too big to fail’ problem remains unresolved. The CMA stated that it would respond to the letter in due course (Guardian, online only).
ECB highlights challenging outlook for European banks
The European Central Bank has warned that the continent’s banks face a struggle to make profits due to low interest rates, slow growth and a large number of bad loans (Daily Mail, online only). It said they may need to cut costs further, merge or change their business strategies in order to improve their performance. In a review of financial stability across the currency union, the ECB also highlighted how economic risks have increased since last November.Read more