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.
Culture a top priority for new FCA boss
Andrew Bailey, Deputy Governor of the Bank of England, has stated that bank culture will remain high on his agenda when he takes over as Chief Executive of the Financial Conduct Authority in July (Reuters). Mr Bailey urged senior leadership at banks to be more open to challenge to avoid “hubris risk, the risk of blinding over-confidence” (Telegraph, B4). He added: “Culture has laid the ground for bad outcomes, for instance where management are so convinced of their rightness that they hurtle for the cliff without questioning the direction of travel.” The full speech is available on the Bank of England website.
Kerry to meet banks to discuss Iran
City AM (p9) reports that a number of big banks will meet with John Kerry, US Secretary of State, this week to discuss sanctions on Iran. Mr Kerry, who is in the UK for an anti-corruption summit, has previously insisted that the US is not opposed to foreign banks doing business with Tehran. Sky News originally reported that the meeting had been proposed by Philip Hammond, the Foreign Secretary, and would also include executives from French and German lenders. The BBA declined to comment on the meeting.
House prices fall as buy-to-let transactions drop
The Guardian (p18) reports that UK house prices fell in April as buy-to-let transactions slumped following a stamp duty rise on second homes, according to figures from Halifax. The bank said the average price of a house slipped to £212,321, down £1,624 on the previous month. The annual pace of inflation also slipped back, from 10.1 per cent to 9.2 per cent. Halifax’s Housing Economist Martin Ellis said: “Current market conditions remain very tight as the severe imbalance between supply and demand persists. This situation, combined with low interest rates and rising employment and real earnings, should continue to push house prices up over the coming months.”Read more
Economists call for new tax disclosure rules
A group of 300 leading economists have called for world leaders to introduce new rules requiring public reporting of taxable activity on a country-by-country basis (BBC News). They have signed a letter urging the UK to “take a lead” in the push for more tax transparency following the Panama Papers leak. One of the signatories, the Economist Dr Ha-Joon Chang of the University of Cambridge, said: “These tax havens basically allow companies and certain individuals to free-ride on the rest of humanity.” Separately, the International Consortium of Investigative Journalists has stated that it will be making a searchable database on the Panama Papers publicly available later today (City AM, p10).
UK businesses hit by cyber attacks
Two-thirds of big UK businesses have been hit by a cyber attack in the past year, according to government research (BBC News). The Cyber Security Breaches Survey found that most of the attacks involved viruses, spyware or malware. Digital Economy Minister Ed Vaizey said it was “absolutely crucial businesses are secure and can protect data”. Separately, the EEF manufacturers’ organisation is also calling for improvements to cyber security after its own study found that almost half of manufacturers have failed to increase investment in the past two years (FT, £, online only).
CMA set to announce ‘updated remedies’ for retail banking sector
The Sunday Times (£, B3) reports that the Competition and Markets Authority (CMA) is expected this month to unveil ‘updated remedies’ as part of its retail banking market investigation. The newspaper states that the CMA will “shy away from a radical overhaul”. Paul Lynam, Chief Executive of Secure Trust, said: “We want the watchdog to learn the lessons of previous probes into retail banking, which have been nothing but abject failures.” The bosses of ten challenger banks wrote to Alasdair Smith, Chairman of the CMA, urging him to consider the impact of new capital rules on small banks and building societies. The CMA’s final report will be released in August.Read more
New anti-corruption unit to be announced
The Times (£, p14) reports that the UK will provide specialist fraud and money-laundering investigators to an international anti-corruption unit to find and seize hidden cash. The Prime Minister is expected to propose the creation of the agency at a global anti-corruption conference in London next week. It would gather and share information among law enforcement agencies about illegal flows of money among criminals and corrupt individuals. Separately, the Evening Standard (p2) reports that a new task force will investigate tax avoidance and evasion with a particular focus on the London property market.
Moody’s warns banks face higher funding costs
UK banks face higher funding costs, squeezed margins and reduced business volumes ahead of the upcoming EU referendum, according to Moody’s (FT, £, online only). The ratings agency stated that the vote has created “modest short-term risks” for the sector. British banks have already experienced rising wholesale funding at the start of the year. Spreads on unsecured bonds have inched up by 30 basis points in the first quarter of 2016.
Early local election results begin to come in
Elections results from across the UK have started to come in (BBC News). The SNP has claimed an “historic” third victory in Scottish Parliament elections with Labour set to be pushed into third by the Scottish Tories. Deputy Leader Tom Watson called it a “mixed picture” for Labour as Jeremy Corbyn’s party held key councils in England, although it lost councillors. UKIP expect to win their first Welsh Assembly seats.Read more
ECB scraps €500 banknote
The European Central Bank (ECB) has decided to stop production of the €500 note amid concerns it could facilitate illegal activities (BBC News). The ECB will stop issuing the note around the end of 2018, when it will bring in new €100 and €200 banknotes. Peter Sands, former Chief Executive of Standard Chartered, had previously stated the high-denomination notes were favoured by terrorists, drug lords and tax evaders. The decision is likely to spark criticism in Germany, where keeping savings in cash is more common than other parts of the European Union (FT, £, p8).
EBA calls for greater disclosure of capital requirements
Andrea Enria, Chairman of the European Banking Authority (EBA), has stated that greater disclosure of capital requirements faced by banks would boost financial stability (Reuters). Mr Enria said regulators should further boost transparency and investor confidence by publishing more data about the extra Pillar 2 capital that banks are required to hold. He said: “The question is, therefore, whether supervisory decisions on, for instance, Pillar 2 requirements and actions possibly triggering the suspension of payments to stakeholders should be transparent.”
Voters head to polls across UK
A series of elections are being held across the UK today (BBC News). Voters will be taking part in elections for the Scottish Parliament, the National Assembly of Wales, the Northern Ireland Assembly and for 124 councils in England. New mayors will be elected in London, Bristol, Liverpool and Salford. Police and crime commissioners are also being elected in England and Wales. Voting at polling stations is allowed until 10pm tonight.Read more
Challenger banks face increasing competition
The Daily Telegraph (B4) reports that challenger banks are facing a more difficult environment as their niche markets become increasingly competitive, according to new research from KPMG. The report claims that margins have started to dip and challengers are offering riskier loans to keep on growing without reducing profitability. Warren Mead, Global Co-Lead of KPMG’s fintech practice, said: “Several challenger banks have targeted profitable niches such as buy-to-let or specialist commercial lending but competition in these areas is reaching saturation so they will need to start widening their nets and working harder to compete with single-service fintech firms, such as payment companies or lending platforms” (FT, £, p23).
Federal Reserve outlines new plans to limit bank failure fallout
The Federal Reserve is proposing new measures to tackle ‘too big to fail’ by asking institutions that trade with a bank that goes into bankruptcy pause before demanding their money back (FT, £, online only). The Fed yesterday unveiled plans to stop counterparties from immediately exercising certain contractual rights when a lender fails. The Fed’s Chair Janet Yellen said: “When these contracts […] unravel all at once at a failed, large banking organisation; an orderly resolution of the bank may become far more difficult, sparking asset fire sales that may consume many firms.” The requirement to alter contracts would apply to eight US banks tagged as institutions that have the potential to cause systemic disruption.
France warns TTIP talks ‘likely to stop’
Matthias Fekl, France’s Trade Minister, has warned that talks between the US and EU over the Transatlantic Trade and Investment Partnership will most likely have to be frozen (BBC News). He said that Europe was offering a lot with little in return, describing the current version as “a bad deal”. The latest TTIP negotiating round took place last week and the European Commission says it hopes to achieve a deal later this year ahead of the US election.Read more
‘Bank of Mum and Dad’ provides foot up on property ladder
Lending from parents to help their children get on the UK property ladder will hit £5 billion in 2016, according to data from Legal & General (BBC News). The total lent by ‘Bank of Mum and Dad’ would place it in the top 10 UK mortgage lenders. Nigel Wilson, Chief Executive of Legal & General, said the research “underscores the huge role of families in an over-priced, under-supplied housing market” (Telegraph, B1). Separately, a study by the National Institute for Economic and Social Research has found rising house prices may be driving a fall in long-term savings rates (FT, £, online only).
China cracks down on shadow banking
The China Banking Regulatory Commission is tightening requirements on the country’s banks in a move that will force them to make provisions for loans that have been disguised as investments (FT, £, p4). The shift is designed to deflate one of the fastest-growing areas of the shadow banking apparatus, where bad debts are increasing. Wei Hou, Director at research firm Sanford C Bernstein, said: “If execution is right, I think you will see a major impact on the banks, especially some of the smaller ones. Some of the small banks could need additional capital.”Read more
Bank of England cautions on deposits with small banks
The FT (£, p4) reports that the Bank of England has warned uninsured depositors to understand the risks of keeping money in smaller banks. Sir Jon Cunliffe, Deputy Governor at the Bank of England, said: “There may be local authority or other organisations’ money deposited with banks that are below the threshold for bail-in bond requirements. They need to be aware that their deposits are more at risk if their bank gets into trouble and does not have bail-in bonds.” Under changes to be implemented over the next four years, small banks and building societies with less than £350 million of assets or about 40,000 transactional accounts, will not have to comply with “too big to fail” regulations and issue “bail-inable bonds”.
UK mortgage approvals fall
UK mortgage approvals declined in March, dropping for the second consecutive month to a four-month low amid uncertainty around the EU referendum (FT, £, online only). The number of mortgage approvals for house purchases fell to 71,400 in March, down from the 73,900 approvals in February. Howard Archer, Chief European and UK Economist at IHS, said: “Increasing domestic economic and political uncertainties could also rein in housing market activity, especially in the run-up to June’s EU referendum. Consequently, house prices may well be softer for the next few months.” The BBA’s latest High Street Banking update, published earlier this week, saw a spike in its lending data in March reflecting the April Stamp Duty changes.Read more
UK jumps up renminbi clearing table
The UK is now the second largest offshore renminbi clearing centre after overtaking Singapore, according to Swift’s RMB tracker (FT, £, online only). The value of UK renminbi payments rose 21 per cent year-on-year last month, accounting for 6.3 per cent of all offshore transactions. This is still considerably behind Hong Kong, which processes 72.5 per cent of all renminbi payments. London is the world’s largest single FX-trading centre, with $2.15 trillion traded daily, according to the latest data from the Bank of England.
CBI calls for reform of apprenticeship levy
City AM (p2) reports that the CBI is calling on the Government to reconsider the apprenticeship levy. In a speech later today, Carolyn Fairbairn, Director General at the CBI will say: “Firms are passionate about apprenticeships, and it’s this passion which drives deep frustration over the levy plans as they currently stand. We are calling for a radical rethink.” The FT (£, p4) notes that the CBI is proposing a stronger role for the new Institute for Apprenticeships in measuring and managing the system, as well as more flexibility on how businesses can spend the levy. It is also worried that the IT to manage the new system will not be ready in time.
Fed concerns ease over state of global economy
The US Federal Reserve has signalled that its concerns about global economic and financial hazards have eased since (FT, £, p1). The central bank yesterday held interest rates at 0.25 per cent but opened the door for an interest rate rise in the coming months. The Times (£, p41) notes that the policy shift comes after a rebound in recent weeks in global stocks and commodity prices, as well as more positive manufacturing surveys from China.Read more
Cyber criminals target bank systems
The FT (£, p1) splashes on a report that banks using the SWIFT global financial transaction system have been ordered to install an urgent software upgrade as cyber security experts warned of a repeat of the Bangladesh Central Bank theft. Meanwhile, FireEye, a cyber security group hired for the Bangladesh investigation, said it had “observed activity in other financial services organisations that is likely by the same threat actor behind the cyber attack on Bangladesh Bank”. Cyber criminals stole $81 million from the Bangladesh Central Bank in February.
Regulator widens Panama Papers inquiry
The Guardian (p20) reports that the Financial Conduct Authority has widened its inquiries into potential links between UK financial firms and the law company at the centre of the Panama Papers leak. Speaking before the Treasury Select Committee yesterday, the FCA’s Acting Chief Executive Tracey McDermott stated that the regulator has approached a number of other firms following its initial inquiries. She added: “It must be remembered there is nothing necessarily illegal about having offshore arrangements. It all depends on their purpose.”
Lending rises as borrowers rush to beat stamp duty rise
There is widespread coverage of the BBA’s High Street Banking statistics for March. City AM (p16) reports that mortgage borrowing hit its highest levels in eight years last month as buy-to-let investors rushed to beat the stamp duty rise. Dr Rebecca Harding, Chief Economic Adviser at the BBA, said: “A surge in buy to let and second home buying ahead of the new stamp duty surcharge in April led to a sharp rise in March’s gross mortgage borrowing as people brought transactions forward.” Reuters also notes that mortgage approvals dropped slightly last month.Read more
British banks recovery slower than European rivals
The FT (£, p18) reports that UK banks have fallen behind their European rivals in their recovery since the financial crisis. Analysis by the newspaper found that annual profits at the UK’s five biggest banks were still running 63 per cent below their 2007 high in 2015, while profits at their European competitors were 34 per cent away from 2007’s levels. Richard Buxton, Chief Executive of Old Mutual Global Investors, said: “An end to PPI provisions, along with conduct fines, would transform the position [of UK banks] relative to European banks”.
SWIFT highlights cyber-attacks on network
SWIFT, the messaging system banks use to transfer payment details, has warned customers that it is aware of “a number of recent cyber incidents” where attackers had sent fraudulent messages over its system (Guardian, online only). The disclosure came as law enforcement authorities investigated how fraudsters had managed to steal $81 million from the Bangladesh Central Bank in February (BBC News). BAE Systems had earlier highlighted how criminals had targeted used malware to target Swift’s systems.Read more