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.
Bank of England proposes new changes to bonus buy-outs
Most papers report plans by the Bank of England’s Prudential Regulation Authority (PRA) to allow banks to claw back employees’ bonuses even after they’ve moved to a new company. City AM (p6) reports that the new rules are designed to prevent individuals from avoiding regulation designed to stop banker misconduct and should “help to encourage a culture within firms where reward better reflects the risks being taken” according to its CEO Andrew Bailey. The Times (£, p38) quotes BBA Chief Executive Anthony Browne as welcoming the proposals, saying that lenders have “made great strides in recent years to reform remuneration” and that “bonus buyouts should not be used as a way to get around the new remuneration regime and efforts to improve individual accountability across the industry”. The paper also voices concerns from legal expert who believe the principle is welcome but may prove difficult to implement.
CBI presses government for changes to the apprenticeship levy
The FT (£, p4) reports that Carolyn Fairbairn, the new Director General of the CBI, has written to the Business Secretary Sajid Javid to warn him that the apprenticeship levy could impose huge costs on employers without any improvement in the training they provide. They are instead calling for an “allowable expense” system whereby companies could claw back some of the costs involved in running the new apprenticeships and to cut the administrative burden on smaller companies caught up in the scheme.
Armed forces to skip bank fees with rent deal
The Sun (£, p30, paper only) reports a deal struck by leading high street banks with the Ministry of Defence, enabling armed forces personnel who are posted overseas to be able to rent out their homes without switching mortgages. The move is estimated to benefit almost 265,000 people. BBA Chief Executive Anthony Browne said: “Our Armed Forces work all over the world to look after us so it’s only right we look after them”.Read more
Chancellor pushing ahead to connect the British and Chinese stock exchanges
Chancellor George Osborne is pressing ahead with plans to connect the British and Chinese stock exchanges, writes City AM (p1). Despite heightened market fears following a period of volatility in Chinese markets, the ‘feasibility study’ into connecting the two exchanges announced by the Chancellor in a speech last September is well underway. A representative from the London Stock Exchange confirmed that a working group with both British and Chinese participants is engaged in an “active and on-going process”, but no date has been set for the publications of the study’s findings.
Bank of England official oversaw cancellation of Financial Conduct Authority (FCA) probe
The FT (£, p1) has revealed that a Bank of England (BoE) official oversaw the move by the FCA to drop their thematic review into banking culture, fuelling concerns that the regulator came under external pressure to drop the probe. According to documents seen by the paper Megan Butler, an Executive Director from the Bank’s Prudential Regulation Authority (PRA), was seconded to the FCA at the start of September and was a “key figure” in overseeing the decision. The FCA said: “to suggest there has been any PRA/BoE influence on the decision is completely untrue”.
Negative credit ratings reach highest level since recession
City AM (p4) reports that negative ratings on corporate credit have reached their highest levels since 2009. Data from Standard and Poor’s (S&P) shows that the net outlook, calculated by deducting the total positive ratings from the negative ones, is at negative 11 per cent, the worst level since the financial crisis. S&P expects this downward trend to continue in 2016, predicting significantly more ratings downgrades than upgrades (Bloomberg, online only). Terry Chan, S&P’s credit analyst, said that Europe is “caught in the cross-currents of domestic recovery, diverging growth, and credit cycles in other regions, plus a swathe of disruptive risk factors from technology, regulation and politics”.Read more
FCA denies being pressured into dropping banking culture review
The Financial Conduct Authority (FCA) has rejected allegations that it was pressured by Treasury to drop its thematic review of culture in UK banks (FT, £, online only). In an answer to a freedom of information request, the regulator insisted that it did not consult with the Treasury, the Bank of England or the Prudential Regulation Authority prior to making its decision to end the review on December 17. The FCA has been criticised for its decision by Shadow Chancellor John McDonnell among others. Senior figures from the regulator, including interim Chief Executive Tracey McDermott, are expected to appear before the Treasury Select Committee next week to discuss the regulator’s approach towards the banking industry.
Fitch Ratings highlights improving asset quality across Europe
In a report published by Fitch Ratings, EU banks are showing broadly improving asset-quality metrics, although the gap between the northern and southern banks is widening (Reuters). The source of the improvement is due primarily to a reduction in legacy non-performing loans at some of the EU’s largest banks. Asset quality for northern European banks is expected to remain better than those for southern European banks for some time. Nonetheless, the report highlights that the quality of published asset data for EU banks continues to present challenges. Regulators such as the European Banking Authority are trying to remedy this by harmonising definitions and providing an increasingly comprehensive data set in its transparency exercises.Read more
BBA helps reunite customers with their lost banks accounts
As part of its 2016 money makeover series, the Daily Mail (p1, pullout) looks at how consumers can save money by switching service providers in a range of industries. The article features mylostaccount.org.uk, a service run by the BBA, the Building Societies Association and NS&I, which allows customers to search for lost bank accounts in any UK bank, building society or National Savings and Investments account. The service allows a customer to search for a lost account “even if you’re not sure which bank or building society your account is with – or whether an account exists at all”. Mylostaccount is an online service, but it is also possible to search by submitting a paper form available for download on the site.
SMEs rank banks’ performance as providers of business services
The FT (£, p3) reports that SMEs rank challenger banks above traditional lenders in customer satisfaction, according to research conducted by Business Banking Insight, a project supported by the Treasury which helps smaller companies decide who to bank with. The research shows a rise from 10 to 15 per cent of SMEs who would consider switching to a different bank in the next six months. But the Times (£, p44) quotes Roger Bibby of Avocet Investments as saying that one of the reasons that more SMEs are not banking with similar specialist banks is that those banks “tend to cherry-pick the best businesses”. Despite the preference for smaller lenders, the survey shows that overall satisfaction is up from 23 to 26 per cent. Mike Cherry, Policy Director for the Federation of Small Businesses, said that “there has to be much, much more competition, but at last we are beginning to see some of that coming through”.
Securities regulation increasingly in focus for regulators
Regulators have become increasingly focused on the dangers of securities lending according to FT (£, fm p9). However, many analysts are concerned that the numerous regulatory changes are damaging liquidity in equity and fixed income markets. Josh Galper, Managing Principal of Finadium, a US-based consultancy, said “securities loans play an integral part in reducing transaction costs, providing liquidity to financial markets and generating income for retirement funds and other long-term investors”. Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, said that improved data gathering around securities would “help transform financing markets into more transparent and resilient sources of financing that would better serve the needs of the [global] economy”.Read more
Please note that this is the final BBA Brief of 2015. The service will resume in January.
Basel Committee drops plans on use of ratings in capital calculations
The Basel Committee on Banking Supervision (BCBS) has reversed plans to ban banks from relying on rating agencies when they calculate risk in their portfolios (FT, £, p23). In a revision of its standardised approach to measuring credit risk, the BCBS reintroduced the use of external ratings in a “non-mechanistic manner” for loans to banks and other companies. In contrast, US banks are already constrained in their use of rating agencies under the Dodd Frank regulatory reforms. Seeking to address concerns over regulatory divergence, the BCBS said it recognised “that there could be a lack of comparability between jurisdictions that use ratings for regulatory purposes and those that do not. The Committee’s objective is to limit the differences in outcomes between such approaches”. Bloomberg reports that the BCBS also eased proposed rules for measuring mortgage risk. The final rules will be published by the end of 2016.
European Commission launches consultation on retail sector
The European Commission has published a green paper consultation on how to improve choice, transparency and competition in retail financial services (Bloomberg). The consultation aims to make it easier for consumers to transfer money, take their bank account and take out mortgages across European borders. It will also examine the impact of digitalisation in the sector. Jonathan Hill, the EU Financial Services Commissioner, said: “Financial products like bank accounts, mortgages and insurance are hugely important in the daily lives of millions of Europeans. But people often miss out on the best deals, or pay over the odds because of the barriers that exist in the European market. In this, as in other areas, the single market can bring benefits”. The consultation closes on March 18.
Government criticised over airport capacity decision delay
The Government has delayed a decision on expanding airport capacity until at least next summer, which has been heavily criticised by business groups (FT, £, p1). Further environmental studies will be now undertaken, with a particular focus on air quality. The British Chamber of Commerce said companies would see it as a “gutless” move. Writing in City AM (p26), the Chief Executives of Heathrow and Gatwick set out their views on the case for airport expansion.Read more
Banks’ resolution arrangements are credible
The Bank of England has confirmed that the measures put in place since the crisis to deal with failing banks are credible and effective. The Financial Policy Committee has judged that ‘resolution arrangements’ coming into force would be effective and a lower capital ratio is therefore appropriate. Analysis of UK lenders’ balance sheets show they are carrying about £220 billion of equity, which the BoE equates to capital ratio of about 12 per cent. The Times (£, p51)reports that the ‘optimal’ capital ratio of risk weighted assets would rise up to 19 per cent,if resolution regimes were less effective than thought.
Buy-to-let market is risk to stability
The Bank of England (BoE) has warned that landlords could increasingly be a threat to banks and financial stability as buy-to-let mortgages are twice as likely ‘to turn bad’ as loans taken out by owner-occupiers (Telegraph, B1). The rental sector is booming as house prices make it harder for first time buyers, but the BoE fears landlords are more vulnerable to a slowdown in the market. Minutes of the BoE’s Financial Policy Committee said: ‘Since 2010, rates of credit loss on buy-to-let loans in the United Kingdom have been around twice those incurred on lending to owner-occupiers’. Meanwhile, the Financial Times (£, p1, p3) suggests the buy-to-let market is coming to the end of an era after one of the UK’s biggest landlords are selling their entire portfolio for £250 million. Fergus and Judith Wilson are putting about 900 properties in Kent up for sale.
Growth expected to be fastest in London and the South East
Most papers and broadcasters have reported on new research by EY that shows London and the South East will continue to drive UK growth. London is projected to expand by three per cent between 2015 and 2018 in gross value added (GVA). This is compared with a UK average of 2.3 per cent. Mark Gregory, EY’s chief economist for the UK said: “London’s booming professional services is doing well and the return to growth of the financial services sector means that this is certainly not a surprise’ (City AM p2). Both the Financial Times (£, p1, p4) and the Telegraph (B1 B8) claim the latest statistics, which show a North/South divide, deal a blow to the Government’s ‘northern powerhouse’.Read more
FCA unveils plans to boost transparency around bank account interest rates
The Financial Conduct Authority yesterday announced a package of measures to boost competition in the banking sector as part of a review of the cash savings market (BBC News). As part of the new rules, which come into effect from December 2016, banks and building societies will have to let consumers know when interest rates change and when introductory rates end. The FCA’s Competition Director Christopher Woolard said: “With many savers never switching because they don’t think it will make a difference, our rules will help consumers get the information they need to shop around.” The FT (£, p4) reports that a new seven-day switching service for cash ISA transfers will also be introduced from the start of 2017.
Cyber security spending rises as EU introduces new rules
Demand for specialist cyber workers has quadrupled over the past year as businesses respond to online threats, according to recruitment company Manpower (FT, £, online only). This surge in demand has led to some cyber security experts being paid more than £10,000 a day. The Center for Strategic and International Studies has calculated that cybercrime costs the global economy $575bn a year.
Meanwhile, City AM (p14) reports that EU firms will be forced to report data breaches to authorities, after European legislators approved yesterday the first-ever EU-wide laws on cyber security. Andrus Ansip, the European Commission’s President for the digital single market, said: “The internet knows no border – a problem in one country can have a knock-on effect in the rest of Europe. This is why we need EU-wide cyber security solutions.” Under the new rules, companies can be sanctioned if they fail to report cybercrime to national authorities.
House prices fall as concerns grow that borrowers are unprepared for rate rises
The trend of rising house prices is likely to continue due to an “acute imbalance” of supply and demand in the market despite a surprise fall last month, according to Halifax (FT, £, p4). The lender said prices in November fell 0.2 per cent compared with a month earlier to £204,552, despite expectations that they would rise 0.2 per cent. It is the fourth time this year that month-on-month prices have slipped.
Homeowners are unprepared for an interest rate rise despite the fact that it would affect the monthly repayments of nearly three quarters of borrowers, according to a survey from TSB (City AM, p9). The poll of over 2,000 adults with a mortgage found that more than half (56 per cent) are already struggling with household bills while 26 per cent said they would have real difficulty if their monthly mortgage repayment increased by £99.Read more
Cyber Security on Radio 4
BBC’s radio 4 Today Programme (beginning at 23 minutes) discusses the costs of cyber crime to the economy both financially and in terms of companies’ reputations. John Rigby, Director of Cyber Crime at Alix Partners, commented on the state of companies’ defences and the threats facing industry including increasingly sophisticated attacks from organised crime. Mr Rigby said that there was a constant arms race between attackers and companies and pointed out that it wasn’t only a matter of a company’s technical controls, but actually about the leadership and management taking responsibility for what is going on. Richi Maudhup, Head of ‘Dot Bank’ operations at Centralnic discussed the ‘dot bank’ domain name. Mr Maudhup described ‘dot bank’ as a very secure domain name open only to banks which had the support of leading banks and the BBA.
The BBA launched its “Know Fraud, No Fraud” campaign to inform consumers about how to protect themselves from fraudsters.
Carney criticises European bonus regulation
Mark Carney, Governor of the Bank of England, said yesterday that Europe’s bonus cap threatened to undermine efforts to raise ethical standards (Times, p52). Speaking at the European Parliament’s Economic Affairs Committee, Mr Carney said that remuneration could be used to tackle “misconduct at source by increasing individual accountability” but that rules capping bankers’ bonuses limited the potential impact of such moves. A blog from the Bank also warned yesterday that poorly designed bank bonus clawbacks could actually encourage risk-taking and short-termism (City AM, p11). The Daily Mail (p24) reports that bankers’ base wage has doubled in order to offset bonus limits.
Donald Tusk writes to European leaders on Britain’s renegotiation
European Council President Donald Tusk has written to other EU leaders about the state of the UK’s EU reform negotiations (FT, £, p2). Mr Tusk said that a deal looked within reach for several of the Prime Minister’s requests, but also warned that when it comes to curbs on in work benefits for migrants, “no consensus” had yet been reached. Mr Tusk did, however, say that based on recent discussions he “should be able to prepare a concrete proposal to be finally adopted in February”.
Read President Tusk’s full letter here.Read more
Central banks urged to hold firm on rate rises
There is widespread coverage today of comments made by the Bank for International Settlements (BIS) that central banks should press ahead with plans to tighten monetary policy and not let market volatility sway their judgement (FT, £, p1). The warning comes ahead of an expected rate rise by the US Federal Reserve, the first in nine years. Claudio Borio, head of BIS’s monetary and economic department, said “a number of anomalies suggest that all is not well in markets”. Commenting on the market gyrations following the European Central Bank’s announcement of more monetary easing this week, Mr Borio said “markets remain unusually sensitive to central banks’ every word and deed”.
City AM (p14) reports that the Bank of England is widely expected to keep interest rates at record lows this Thursday, with more economists viewing 2017 as the more plausible option for the first increase rate rise since the financial crisis. Rates are expected to stay low due mainly to the deflationary pressure created by a strong pound, which make imports cheaper according to economists from Citi.
Smaller financial services firms priced out of FMSB
The FT (£, p20) reports that some small financial services groups have complained that high membership fees will exclude them from the government-backed Fixed Income, Currency and Commodities Markets Standards Board (FMSB). The body was established following the Fair and Effective Markets Review and is working to develop a code of conduct for the industry, which is expected in the first half of next year. As it is not government funded, it is charging all members regardless of size £100,000 per year. David Mercer, chief executive of LMAX, said “Surely the idea was to garner views from across the market…the fee has effectively excluded these ideas from an important debate”.
Bonuses expected to fall by up to 10 per cent
Bankers are being warned that bonuses could fall by almost 10 per cent in this year’s round, with zero-bonuses expected to make a comeback in 2016 (City AM, p1). According to figures published today by the salary benchmarking website Emolument, investment bankers working on floats, mergers and acquisitions, and in fixed income, currency and commodities are most at risk of seeing their bonuses cut. However, managing directors in equity markets will see a 2.3 per cent increase (Independent, p52).Read more
Taxes paid by financial services industry reaches pre-crisis levels
The Times (£, p57) reports on the latest tax report published by the City of London Corporation and PwC which shows the tax contribution of the financial services sector has reached its highest level since the financial crisis. The report estimates that firms have paid £66.5 billion in employment, corporation and other levies over the past year. According to the FT (£, p4) UK financial services companies paid 1.4 per cent more in tax last year, but this still amounts to their lowest contribution as a percentage of total government receipts since before the financial crisis. Commenting in the FT, Anthony Browne, CEO of the British Bankers’ Association, said: “The corporation tax surcharge for banks will have a significant impact on the sector’s tax contribution. It should be clearly positioned as a temporary measure that will be tapered as the sector’s corporation tax receipts continue to normalise.”
Luxembourg set to challenge London as European financial services capital
Luxembourg is looking to challenge to London as Europe’s leading financial centre within five years according to the Telegraph (p4). The “LUXFIN 2020” project aims to challenge London, and other European financial centres, such as Frankfurt and Paris. Luxembourg’s plans are detailed in a report that does not directly mention the possibility of the UK leaving the EU, but which points out that Luxembourg ‘is firmly rooted within and strongly committed to the European Union’. The proposals also aim to make the country a leading base for fintech. Read the BBA’s latest report looking at the growing challenges to the UK’s competitiveness as a banking centre online here.
Housing market to slow in 2016
House prices in the UK will rise by between 4 per cent and 6 per cent in 2016, as affordability problems increase and speculation over an interest rate rise continues, according to new industry research. The Guardian (p36) reports that the latest Halifax report finds that while demand for property has been picking up in recent months, the number of homes coming to market has been at a record low. This has driven up prices and produced a vicious circle as sellers wait until there are more homes available before putting their own up for sale. Halifax housing economist Martin Ellis said “with house prices continuing to increase more quickly than average earnings it is increasingly difficult to get on the housing ladder…This, combined with the growing prospect of an interest rate rise, should start to put the brakes on house price growth during 2016”.