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.
Prime Minister announces new corporate tax evasion criminal offence
The government has announced that it will bring forward plans to introduce a criminal offence for corporations who fail to stop their staff facilitating tax evasion (BBC News). Companies will be held criminally liable if they fail to stop their employees from facilitating tax evasion. Catherine Robins, a Partner at Pinsent Masons, stated that “creating this new offence without similar efforts by other leading jurisdictions could harm the competitiveness of our financial institutions” (Times, £, p8). The Prime Minister will next month host the London Anti-Corruption Summit aimed at coordinating global efforts to tackle corruption.
IMF cautions against negative interest rates
The International Monetary Fund has warned that negative interest rates could lead to a ‘boom and bust’ cycle (Telegraph, B2). José Viñals, the IMF’s Director of the Monetary and Capital Markets Department, stated that negative rates posed a threat to profitability in the banking sector and could lead to “excessive risk-taking”. Mr Viñals wrote in a blog: “As banks’ margins are squeezed, they may start lending to riskier borrowers to maintain their profit levels.”
PFCA warns against reforms to PPI
The Times (£, p40) reports that the Professional Financial Claims Association has claimed that older people could miss out on millions of pounds in compensation for mis-sold PPI if the Financial Conduct Authority introduces a deadline for new claims. The PFCA also said that the elderly and vulnerable could be affected disproportionately if the government carries out its plans of capping the fees that claims management companies can charge for taking on cases. Nick Baxter, Chairman of the PFCA, warned that “both of these initiatives would discriminate against vulnerable groups.” A survey by Populus, commissioned by the PFCA, found that half of people aged over 65 were not confident about pursuing a PPI claim without help.Read more
FCA sets deadline for Panama Papers reviews
The Financial Conduct Authority has written to about 20 financial firms, including banks, to ask them to complete internal reviews of whether they are linked to the Panama law firm Mossack Fonseca (FT, £, p2). The FCA has requested the firms allegedly involved to respond by 15 April. Mark Garnier, Conservative MP, said: “[…] it does strike me as entirely reasonable for banks to be held to account if they aid and abet criminal activity. In that respect they should be prosecuted alongside tax evaders if their actions helped a criminal activity.” In a statement, the FCA said: “As part of our responsibility to ensure the integrity of the UK financial markets we require all authorised firms to have systems and controls in place to mitigate the risk that they might be used to commit financial crime” (BBC News). The French regulator, ACPR, has also asked for additional information from French banks (Reuters).
House prices surge amid rush for buy-to-let homes
House prices jumped by over ten per cent in the year to March, driven by a sharp rise in the value of London flats and a large number of buy-to-let transactions, according to figures published by Halifax (BBC News). However, the lender said that the housing market could “soften” over the coming months amid uncertainty over the EU referendum. Howard Archer, economist at HIS, said: “Post April, a likely waning of buy-to-let and second home interest may modestly dilute housing market activity and ease upward pressure on prices.” (Telegraph, B5).Read more
Tyrie challenges tax write-offs for banks
Andrew Tyrie, Chairman of the Treasury Committee, has written to George Osborne seeking clarification on whether banks can offset any of the payments they make to regulators against their corporation tax bill (Times, £, p42). Tax rules were changed last year to stop tax deductibility for compensation payments made to customers. Reuters notes that Mr Tyrie’s letter states that the Chancellor had suggested that the tax changes may not have caught compensation payments to regulators, which could therefore still be tax deductible. It states: “If so, taxpayers are on the hook for some aspects of a bank’s misconduct. That would be unacceptable. I urge you to look again at this.”
Bank of International Settlements calls on banks to reduce dividend payments
Eurozone banks should be encouraged to keep more of their profits rather than pay dividends, according to the head of research of the Bank of International Settlements (Reuters). Hyun Song Shin stated that banks should reduce such payments to bolster their capital and finance new loans. He said: “Banks have paid out substantial cash dividends, even in those regions where bank lending may not be sufficient to support recovery of economic activity after the crisis.” Eurozone banks paid €196 billion in dividends from 2007 to 2014, or roughly 43 percent of their profits, according to BIS data for 90 lenders incorporated in the currency bloc.Read more
BoE to review capital buffers after EU referendum
The FT (£, p4) reports that the Bank of England will review how much capital it requires banks to hold following the referendum on European Union membership. Minutes of the Financial Policy Committee (FPC) meeting show that some policymakers wanted to move faster in raising the new countercyclical capital buffer towards the one per cent target. The Times (£, p38) notes that the FPC singled out China as one of its main concerns, although it added that risks in the UK’s domestic banking system had risen ‘beyond their subdued levels in the immediate post-crisis period’. The Telegraph (B8) says the FPC warned that bank lending could be hit by a combined crunch from new taxes on buy-to-let property investors and uncertainty over the EU referendum.
Spotlight on Panama papers
The Daily Mail (p65) reports that members of the Treasury Select Committee want to question leading banks that were named in a leak of confidential files from Panama law firm Mossack Fonseca. The documents suggest they had wealthy clients closely linked to tax avoidance schemes. Meanwhile, pressure is growing on the Financial Conduct Authority to launch a full-blown investigation into the claims. Conservative MP Mark Garnier said: “We need to give these blue-chip banks an opportunity to answer the accusations they’re apparently supporting tax avoidance. I would hope we’ll be able to look into this fairly quickly.” Separately, the Times (£, p1) reports that the Panama files show criminals and world leaders have invested hundreds of millions of funds in London property. The Financial Conduct Authority (FCA) has also stated that it will prioritise the fight against money laundering and has written to about 20 regulated companies linked to the Panama papers (FT, £, p4).
US seeks to clarify Iran sanctions
Leading officials from the US are undertaking informal roadshows around the globe in an effort to help businesses navigate sanctions on Iran (FT, £, p10). European and Asian banks have complained that the current US rules do not provide enough certainty around doing business with Iran. Secretary of State John Kerry said: “Iran deserves the benefits of the agreement they struck. In fact, we have tried to make sure that the banks that are supposed to be doing legitimate business with Iran after the agreement, that they are operating.” The newspaper notes that US officials are looking at ways that would allow non-US banks to use dollars at some stage in a transaction.Read more
Investment banks experience slow start to 2016
Global investment banks have suffered their slowest start to a year since 2009, according to figures published by Thomson Reuters (Times, £, p33). Global fees totalled £11.4 billion in the first three months of the year, a decline of nearly 30 per cent compared with the first quarter of last year. Chirantan Barua, a senior analyst with Sanford Bernstein, said that this year had been “abysmal” for the industry and highlighted how margins have been hit by negative interest rates. City AM (p3) notes that fees in the UK and Ireland were down 23.5 per cent to $1.3 billion.
Spotlight on Panama papers
Leaked confidential documents show that a Panamanian legal firm kept clients who were subject to international sanctions (BBC News). Mossack Fonseca worked with 33 individuals or companies who have been placed under sanctions by the US Treasury, including companies based in Iran, Zimbabwe and North Korea. The law firm registered companies as offshore entities operated under its own name. The Evening Standard (p40) reports that British banks have been linked to the setting up of offshore companies. Bloomberg reports that regulators are looking to question a number of European banks as part of their investigations.Read more
Contactless payments on the rise
There has been a surge in contactless transactions since the limit increased from £20 to £30 last year, according to Visa Europe (Telegraph, p9). Contactless now makes up one in five of all face-to-face card payments under £30, with 36 million transactions worth nearly £900 million since last September. City AM (p7) quotes Kevin Jenkins, Managing Director UK and Ireland for Visa Europe, as saying: “Where the convenience and safety of making a contactless payment is available, consumers are eager to be cash free and proud.”
Banks braced to pay further PPI claims
The FT (£, p4) reports that UK banks face at least £22 billion more in payment protection insurance (PPI) payouts. Figures from the Financial Conduct Authority (FCA) show that the industry has so far paid out £23 billion in compensation since 2011 for mis-selling PPI. The Professional Financial Claims Association (PFCA) claims that almost half of this total represents interest, meaning only £11.5bn of the premiums have actually been repaid. The FCA is currently consulting on whether to impose a two-year time bar on PPI claims. Nick Baxter, Chairman of the PFCA, said: “Clearly the time will come when a time bar is appropriate, but that time is not now.” James Daley, Founder of consumer group Fairer Finance, said it was hard to argue consumers were getting a raw deal, partly because there was still plenty of time to claim and there were so many adverts for PPI compensation.Read more
Services sector records strong growth
The UK’s service industry now accounts for 80 per cent of the economy after posting a 12th consecutive quarter of growth, according to figures from the Office for National Statistics (FT, £, p2). It is now the only established sector to have exceeded its pre-crisis size with significant growth in IT and professional services. Andrew Sentance, a former Bank of England policymaker who now advises PwC, said that the economic recovery is “much better balanced than most people think”. He highlighted the fact that services sector has a large trade surplus.
Trade deficit hits record high
The UK’s current account deficit widened to a record high in the last quarter of 2015 (BBC News). The deficit jumped to £32.7 billion – or seven per cent of GDP – in the final three months of last year. The Chancellor said that the gap “exposed the real danger of economic certainty”, arguing it showed that “now is precisely not the time to put our economic security at risk by leaving the EU” (Times, £, p2). City AM (p2, paper only) quotes Vicky Redwood, Chief Economist at Capital Economics, as saying that the UK could face a “balance of payments crisis” in the run-up to the referendum on European Union membership.Read more
Complaints fall in second half of 2015
The number of complaints to financial services firms dropped in the last six months of 2015, according to figures published by the Financial Conduct Authority (City AM, p15). In particular, complaints about savings and other banking dropped 15 per cent in the second half of last year while complaints about current accounts fell ten per cent. However, the Telegraph (B8) notes that complaints about PPI rose six per cent ahead of a potential two-year cut-off date proposed by the FCA. A BBA spokesperson said bank employees are now rewarded for high levels of customer service and not sales volumes, which should mean “no repeat of any of the bad practices which caused mis-selling in the past”.
Banks adapt to new technology
The FT (£, p21) reports that leading banks are embracing new technology to meet demand for faster services. The industry is increasingly making use of video meetings and voice recognition services as more and more consumers look to manage their money on the move. Figures from consultancy CACI show that current account customers visited their branch 427 million times last year, less than half the 895 million logins on a mobile app.
Separately, the FT (£, p16) also notes that a new report by Citigroup has predicted that European and US banks will cut another 1.7 million jobs over the next decade as financial technology companies increasingly move into profitable growth areas such as lending and payments. Ronin Ghose, one of the report’s authors, said: “Obviously the biggest take out will happen in countries that have been through a crisis or are tech savvy.”
EBA rejects criticism of bonus cap
The Telegraph (B1) reports that the European Banking Authority has rejected criticism from UK regulators that the EU bonus cap poses a threat to financial stability. The EBA said the cap, which limits bonus payments to 100 per cent of basic pay, or 200 per cent with shareholder approval, had only led to a “very small increase” in the fixed costs of some banks. The Times (£, p44, paper only) notes that nearly 3,000 UK-based bankers were paid more than €1 million in 2014, compared with 242 in Germany and 171 in France.Read more
Banks to help ease burden on grieving families
The Daily Mail (p50) reports that new guidance published today will help customers to report a death. The new code of practice has been produced by a Bereavement Working Group set up by the BBA. The industry also intends to establish a ‘Tell Us Once’ service, which will mean customers only have to report a death once even if they have multiple accounts or products with a bank or another one of its brands. Mandy Griffin of Nationwide and Chair of the BBA’s Bereavement Working Group said: “The new bereavement principles will give greater support to families at the most distressing time, and make the process of notifying financial organisations of the death of a loved one much easier.”
Bank of England proposes curbs on buy-to-let market
The Bank of England has recommended that banks and building societies adopt stricter lending criteria for buy-to-let landlords (BBC News). The Prudential Regulation Authority – part of the Bank – proposed that lenders should consider the wider financial situation of landlords, rather than just their rental incomes. The PRA said the new standards would “curtail inappropriate lending, and the potential for excessive credit losses.” The Times (£, p1) notes that all buy-to-let applicants will now need to pass an affordability test based on a scenario where interest rates rise to 5.5 per cent.
Capital buffer to rise next year
The Bank of England’s Financial Policy Committee has announced it will increase the countercyclical capital buffer for banks to 0.5 per cent of risk-weighted assets from next March (City AM, p4). The move is designed to further improve the resilience of the banking sector in the face of a slowing global economy. The FPC will simultaneously reduce ‘Pillar 2’ capital buffers, meaning around three-quarters of all UK lenders will not see their overall regulatory capital requirements increase. The Daily Mail (p65) reports that the Bank also published details of this year’s stress tests for the sector. It will assess the ability of banks to cope with a 31 per cent fall in house prices, an oil price drop to £20 a barrel and a 4.3 per cent contraction in the economy.Read more
Financial services faces ‘perfect storm’
The UK’s financial services sector has reported its first downturn in business confidence since 2012, according to a new report from the CBI and PwC (Telegraph, B1). The research cites concerns over the health of the global economy, market volatility and the possibility of Britain leaving the European Union as key factors behind the negative sentiment. The Guardian (p19) notes that banking and investment management were the most pessimistic sub-sectors. Rain Newton-Smith, the CBI’s Director for Economics, said: “Concerns over China and a volatile start to the year for markets, alongside uncertainty about a possible Brexit, have created a perfect storm to dampen optimism in financial services”.
Buy-to-let market could face new clampdown
The Bank of England could introduce new restrictions on the buy-to-let property market amid fears that the sector poses risks to financial stability (City AM, p7). The Chancellor told the Treasury Select Committee last week that it is “highly likely” he will give the Bank’s Financial Policy Committee additional powers to address a potential bubble in the buy-to-let sector. The Telegraph (Monday, B1) reported that the Bank will publish a report on the sector later today. A new three per cent stamp duty surcharge on buy-to-let properties and second homes comes into effect next month.Read more