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.
Federal Reserve cautious on economic outlook
Federal Reserve Chair Janet Yellen has hinted that there is little prospect of the US increasing interest rates again any time soon (BBC News). Speaking before Congress, Ms Yellen pointed to deteriorating economic conditions that are “less supportive” of US growth. The FT (£, p1) notes that her cautious assessment was in stark contrast to the more optimistic tone of her last public statement in December. Ms Yellen also highlighted a potential Chinese slowdown as a major global risk.
MiFID II faces delay
The European Commission has proposed a delay of a year to the implementation of the Markets in Financial Instruments Directive, or MiFID II (City AM, p9). The new deadline for implementation is 3 January 2018. EU Commissioner for Financial Services, Lord Hill, said: “Given the complexity highlighted by ESMA [European Securities and Markets Authority] it makes sense to extend the deadline. We will therefore give people another year to prepare properly and make the necessary changes to their systems.”
Tusk hints at further EU referendums
Donald Tusk, the European Council President, has stated that other countries are prepared to follow Britain’s lead by holding referendums on European Union membership (Times, £, p1). He said: “I know, in fact, that some politicians in Europe are ready to use this political model, to underline they are really independent towards Brussels and the EU.” The FT (£, online only) reports that Mr Tusk also warned that the migration crisis was the “worst political context”‘ for the British referendum.Read more
New Joint Fraud Taskforce launched
The Home Secretary, Theresa May, launched a new Joint Fraud Taskforce at Mansion House this morning (BBC News). Banks will join forces with law enforcement and government as part of the initiative. Ms May said: “For too long, there has been too little understanding of [financial fraud] and too great a reluctance to take steps to tackle it”. The FT (£, online only) reports that the Taskforce will initially explore how efforts to tackle fraud can be improved by better intelligence-sharing and addressing vulnerabilities in the system.
Bank of England focuses on debt levels
The Bank of England’s Deputy Governor Sir Jon Cunliffe has said policymakers must act quickly to prevent a credit bubble if household debts start rising rapidly again (Telegraph, B2). He warned that debt levels are still “high by historic standards” and said the buy-to-let market required closer monitoring. The Times (£, p38) speculates that Mr Cunliffe’s warning could signal imminent action by the Bank’s Financial Policy Committee (FPC), which meets next month. The FPC can stop households taking out large mortgages under new debt-to-income powers.
UK trade gap hits record levels
New figures from the Office for National Statistics show that the UK’s trade deficit with the rest of the world widened from £8.6bn to £10.4bn in the final quarter of 2015 (BBC News). The goods trade gap widened by £1.9bn to a record high of £125bn last year as exports to other European Union countries declined. Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, said: “We expect a poor trade performance to continue to impede the economic recovery this year”. Separately, the FT (£, online only) reports that Lord Maude has announced that he is to step down as Trade Minister in a few weeks after less than a year in the job.Read more
Open banking to help customers get better deals
The publication of the Open Banking Working Group’s report is reported in a number of newspapers. City AM (p6) highlights that the report calls for banks to make more data openly available so that consumers can more easily compare products and services. It argues that this could boost competition and innovation in the sector. The FT (£, p2) quotes Anthony Browne, the BBA’s Chief Executive, as saying: “Making more bank data openly available will make it easier for people to shop around for products tailored to their needs and get the best deals. But crucially, no data would be shared without the explicit consent of the customer and that data will be protected with robust security checks.”
Doubts over Chancellor’s fiscal plans
The Green Budget from the Institute for Fiscal Studies has highlighted the major challenges Chancellor, George Osborne, faces if he is to meet his goal of running a surplus by 2019-20 (FT, £, p3). The Telegraph (online only) speculates that Mr Osborne could raise taxes on banks to plug the gap in the public finances. The IFS estimates that doubling the bank levy would raise an extra £2.8 billion. The newspaper also notes that the amount the banking-specific corporation tax surcharge is expected to generate is likely to be considerably more than the £6.9 billion forecast by the Office for Budget Responsibility. Sky News nots that the IFS suggests a Brexit vote could lead to greater indebtedness and lower productivity growth.
Average house price to hit £1 million by 2032
The Telegraph (online only) says research by the Liberal Democrats, based on Office for National Statistics figures, has indicated that average homes in Britain will cost more than £1 million in 16 years. It said prices will rise from £290,000 to £650,000 in a decade and reach £1.017 million in 2032. The Lib Dems will use a Commons debate today to call on the Government to build more houses. The Telegraph (B3) also notes that interest rates on mortgages have hit record lows. The average interest rate on a two-year fixed mortgage fell to 2.52% in February, down from 3.14% a year earlier and the lowest level since Moneyfacts.co.uk, which compiled the data, began monitoring the sector in 2007. In contrast, the average mortgage fee has risen by 4.2% over the past year.Read more
Tyrie urges Chancellor to clarify bank tax rules
Andrew Tyrie MP, Chairman of the Treasury Select Committee, has written to the Chancellor George Osborne to ask him to clarify rules on whether banks can offset fines against their corporate tax bill (BBC News). Mr Tyrie said it appeared that in some circumstances banks were claiming fines paid to the regulator were tax deductible. The FT (£, online only) reports that he has also asked for clarification over Section 166 reports, which are ordered by the Financial Conduct Authority (FCA) when they suspect a firm has weaknesses in areas such as governance, financial crime and IT. Mr Tyrie argues in the letter that if s166 reports did not lead to enforcement action from the FCA, then they should be tax-deductible.
High-value banknotes in the spotlight
Peter Sands, the former Chief Executive of Standard Chartered, has called for high-denomination bank notes to be taken out of circulation around the globe to boost the fight against financial crime (FT, £, p1 and p6). In a new paper, Mr Sands states that “If you really want to tackle money laundering it seems a bit perverse not to tackle cash, which is actually the preferred mechanism of people who want to launder money”. He adds that the large sums spent by banks on upgrading systems to track electronic transfers of illegal funds has in fact made cash more attractive to criminals. Mr Sands is calling on the G20 to take up the issue ahead of its next summit in September.
Challenger banks focus on corporation tax surcharge threshold
The Daily Mail (p.65) reports that challenger banks will express concern over the new corporation tax surcharge at a meeting with HM Treasury next month. Representatives of 12 challenger banks are expected to try to persuade Treasury officials to raise the threshold at which the tax comes into effect from £25 million to £250 million. The newspaper notes the BBA has highlighted the banking sector will have had to pay out almost £40 billion in five extra bank-specific tax measures, on top of corporation tax and national insurance, between 2010/11 and 2020/21. The BBA published a report last year highlighting that the tax contribution of the UK banking sector climbed to £31.3 billion in 2014.Read more
Interest rate rise delayed by BoE
Most papers report the decision by the Bank of England’s Monetary Policy Committee yesterday to hold rates at their current rock-bottom, with many speculating that rates will remain low for at least another year. The FT (£, p2) reports Mark Carney, the Bank’s Governor, saying that the UK was being buffeted by an “unforgiving global environment and sustained financial market turbulence”, as the Bank downgraded its inflation, growth and wage forecasts. The Guardian (p26) carries further warnings from Mr Carney to British households and businesses, urging them to nonetheless prepare for a future rate rise since they are still relatively indebted. The Times (£, p37) also claims that the Bank’s pessimistic outlook will come as a blow to the Chancellor, who has been preparing the country for higher rates by claiming that they are a sign of economic strength.
BoE battles Brussels on bonus cap
The FT (£,p3) reports that the UK is continuing its fight against the EU cap on bankers’ bonuses by including it in a response to an EU review of rules put in place since the financial crisis that are said to not be working. In its submission to the review, which is being led by UK Commissioner for Financial Services Lord Hill, the Bank said the cap has had the unintended consequence of increasing fixed pay limiting the ability to claw back bonuses in the event of wrongdoing. Alexandra Beidas from law firm Linklaters said “most of the City is hoping the Bank’s recent comments indicate it will choose not to extend the cap”.
Pound put at risk by Brexit vote
Financial institutions have begun insuring themselves against the pound collapsing if Britain votes to leave the EU, as reported by the Times (£, p38). The Bank of England issued the stark warning yesterday as it cautioned that growth could suffer in the coming months from uncertainty about the referendum’s outcome. The paper quotes an analysts’ report by investment bank Goldman Sachs, arguing that the pound could crash by as much as 20 per cent if the UK decided to leave. The Daily Mail (p71) argues that if the pound did tumble, as it did after the UK left the Exchange Rate Mechanism, it could spark an economic boom similar to that in 1992, which the paper claims lasted until the onset of the financial crisis in 2007.Read more
Reaction to draft reform deal for the UK’s EU membership
There is widespread coverage of yesterday’s House of Commons debate on the draft deal that will form the basis for a renegotiation deal of Britain’s membership of the European Union. Prudential Regulation Authority Chief Executive Andrew Bailey has stated that Britain leaving the EU will not lead to a “golden world” of deregulation (Telegraph, B1). Appearing before the Treasury Select Committee, Mr Bailey – who will take over as Chief Executive of the Financial Conduct Authority this summer – said that the Bank of England’s priority in that scenario would be to maintain financial stability. Meanwhile, London Mayor Boris Johnson said that the Prime Minister is “making the best of a bad job” (BBC News).
Uncertainty over interest rates
The Bank of England’s Monetary Policy Committee is meeting today, but it is unlikely they will shift interest rates. Indeed, traders are increasingly pushing back their forecasts for an interest rate rise to late 2017 – with some even beginning to price in the prospect of a UK cut (FT, £, p4). Dominic Rossi, global chief investment officer of equities at Fidelity, the world’s second largest fund manager, has criticised the Bank’s Governor Mark Carney for confusing markets and said rates were unlikely to rise any time soon (BBC News). However, former Bank of England policymaker Marian Bell has recommended an immediate increase (Daily Mirror, p43).
EU turns focus on bitcoin use in terrorism finance
The European Commission has published an action plan to tackle funding for terrorist groups (City AM, p10). The plan calls for virtual currency exchange platforms to be included under the European Anti-Money Laundering Directive, enforcing more disclosure of who uses the services. The Commission is also considering including bitcoin wallet providers. It states: “New financial tools such as virtual currencies create new challenges in terms of combating terrorist financing. Highly versatile criminals are quick to switch to new channels if existing ones become too risky.”
Draft reform deal for the UK’s EU membership published
Draft proposals on a deal to change the UK’s relationship with the EU were published yesterday by Donald Tusk, President of the European Council. The details of the proposal are reported across the papers with some calling it a meaningful change and others saying is not nearly enough to justify Britain staying in the EU. The FT (£, p1) reports that the Prime Minister will today launch a two-week campaign to sell the new deal to sceptical MPs and EU leaders. The Times (£, p1) leads with the criticism that MEPs will have a veto over curbs on benefits for migrants while the Guardian (p1) reports that Home Secretary Theresa May will support the campaign for Britain to remain in the EU. The FT (£, p3) reports a cautious welcoming of the deal from the City with bankers saying that competitiveness was the number one issue they wanted to see addressed in the deal.
European Commission call for evidence on the EU regulatory framework for financial services
Responding to an EU consultation, representative bodies of the world’s biggest companies have said that the barrage of regulations coming out of the EU has created uncertainty and confusion hurting business and trade (FT, £, p20). A range of businesses have warned that compliance costs have reached prohibitive levels with the CEO of the European Banking Federation, Wim Mijs, saying that now was the time to “calibrate and fine-tune the new regulatory framework.” According to Bloomberg the European Commission has received hundreds of pages of letters with even the UK accounting regulator asking Brussels to write simpler rules and consider deregulation.
The BBA responded to the Commission’s consultation with our own detailed response. Read a blog by lead author Conor Lawlor on what the Commission needs to do to make financial regulation work for consumers and the industry.
The US and EU agree a new data sharing deal to replace ‘safe harbour’
A new deal on data sharing between the EU and the US to replace the ‘safe harbour’ agreement shot down by the European Court of Justice last October has been agreed (FT, £, p7). The deal is being called the “EU-US privacy shield” and will be relied on by thousands of smaller companies to move data (Telegraph, B5, paper only). The deal includes the understanding that a US director of national intelligence will personally sign a pledge that the US government will avoid “indiscriminate mass surveillance” of EU citizens. According to an estimate from think-tank ECIPE, ending transatlantic transfers of data would knock 0.4 per cent off the EU’s GDP per year.Read more
UK renegotiation draft deal to be unveiled
European Council President Donald Tusk is set to publish a draft paper at 11 am today, outlining a series of measures that will form the basis for a renegotiation deal of Britain’s membership of the European Union. The BBC says the paper will include new powers for national parliaments to block “unwanted” EU law. The Telegraph (p1) notes the ‘red card’ proposal would allow the Commons to effectively veto any inappropriate EU legislation – as long as MPs and MEPs have the support of 55 per cent of the national parliaments in the EU. The Times (£, p1) claims that the Prime Minister David Cameron has put the country on track for a June referendum but still faces some opposition from the Home Secretary who is reported to be demanding tougher measures to stop the abuse of EU migration rules. ECB President Mario Draghi also said that securing a deal to keep Britain in the EU would provide a “confidence boost” to Europe (City AM, p8).
Mortgage approval booms in rush to beat rate rise
Figures published by the Bank of England show that mortgage lending boomed through to the end of 2015, even in the traditionally quieter month of December, as customers rush to secure a mortgage before a future rate rise (Telegraph, B4). Howard Archer, Chief Economist at IHS Economics said “the increased likelihood that interest rates may not rise until at least the fourth quarter of 2016 could very well give a boost to housing market activity” (City AM, p10). The Times (£, p34) also reports that while house prices soar, consumer credit in Britain is also growing at its fastest rate in almost a decade. Households now owe £63.3 billion on credit cards and £115.3 billion in other loans, excluding mortgages, as record low interest rates drive up demand for unsecured credit. The BBA’s High Street Banking statistics last week showed that there was a 6% rise in mortgage borrowing compared last year compared to 2014.
Lending to small business increases
The FT (£, p4) covers the Small Business Finance Markets Report released by the British Business Bank, showing a renewed availability of bank debt, which increased for four consecutive quarters in the year to October 2015. The analysis by the state-owned wholesale lender also found a surge in private equity and peer-to-peer finance for SMEs, albeit from a low base. Keith Morgan, Chief Executive of the British Business Bank, said: “While there are encouraging signs that volumes are up and alternative finance markets are thriving, there remain areas that still require attention”.Read more
Britain’s European renegotiations enter a crucial 24 hours
The next 24 hours have been described as “crucial”, as talks continue in an attempt to agree a draft deal for Britain’s renegotiated membership of the EU. A meeting between Prime Minister David Cameron and European Council President Donald Tusk on Sunday night ended without a deal on the issue of how the UK can restrict benefits to EU migrants (BBC News). There is also growing speculation that there is still no agreement over plans to give non-eurozone countries greater safeguards. The FT (£, p1) reports that France is increasingly concerned about proposals that would allow the UK to “escalate” any dispute over eurozone rules that would impact Britain.
UK regulators to help Iranian banks reintegrate
UK-based Iranian lenders will soon be able to benefit from a unit designed to aid start-ups, following the Bank of England officially reactivating the licenses of three Iranian owned banks (FT, £, p6). Since Iranian sanctions have been lifted in January, three major Iranian banks, Persia International, Melli Bank and Bank Sepah International, have all been unable to carry out most financial transactions. The Financial Times writes the problems the banks are facing highlight the difficulty of reintegrating the Iranian-owned banks into the global financial system even after international sanctions have since been lifted. Read BBA Chief Executive, Anthony Browne’s recent oped in CityAM on the challenges faced by the banking sector following the lifting of some Iranian sanctions.
House of Commons set to debate the future of the FCA
The House of commons will debate the future of the Financial Conduct Authority (FCA) in a backbench business debate sponsored by Guto Bebb MP and John Mann MP. The vote was tabled by the parliamentarians after the FCA decided not to continue its supervisory review into banking culture (Guardian, p22). The Mail on Sunday (p87) reports that there is some concern that without a government whip, MPs could vote against the FCA. The papers report that the Government has told its MPs they need to be on hand to vote for the Bank of England Bill, which is being debated this afternoon, but it has not been made clear whether it will whip MPs to support the regulator.Read more
Japan introduces negative interest rates
The Bank of Japan has introduced a negative interest rate of -0.1 per cent in the latest attempt to counter the continuing economic slump in the world’s third-largest economy, hoping it will prompt banks to lend more (BBC news online). It is a move that has been on the cards for Japan’s stagnating economy for well over 10 years. The decision to go negative came after a narrow vote at the Bank of Japan’s first meeting of the year today. The Bank of Japan said it will “cut interest rates further into negative territory if judged as necessary” adding it would continue as long as needed to achieve an inflation target of 2 per cent. Some analysts have cast doubt over how effective the rate cut will be.
UK moves closer to EU deal
Several papers report that the Prime Minister David Cameron is on the cusp of a renegotiation deal on British Membership of the EU, as he travels to Brussels today for more meetings with the President of the European Commission and the European Council. The FT (£, p1) reports that David Cameron is on course for a June EU referendum, on the basis of a draft reform deal that creates an “emergency brake” on migrant benefits for up to four years. Eurosceptics say that proposal would only affect about 20 per cent of EU migrants working in Britain. The Telegraph (p1) said the proposal had been ‘watered down’ as it relies on the UK convincing Brussels that its public services are being put under strain because of foreigners.
Investment fund managers cut bank research costs
A growing number of British investment funds are refusing to pay fees to investment banks for research on stocks and shares, in a move that is suggested would eventually bring down costs for investors (FT, £, p3). Martin Gilbert, the Chief Executive of Aberdeen Asset Management, said “This is the direction of travel. We inevitably think that fund managers will increasingly pay for their own research and it is not going to cost them as much to do that as it has been [when the bill is paid via trading commissions]”.Read more