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.
Governor calls on authorities to work with financial industry in emerging economies
Bank of England Governor Mark Carney has said that communities and businesses in emerging economies have been affected after banks have opted to end relationships with correspondent banks in certain regions or lines of business, the FT (£, p11) reports. In an article for the paper, the Governor explains that some banks in the developing world have been found not to have the highest levels of compliance with regulations around anti-money laundering and financial crime, which has led banks from developed countries to exit the region or line of business altogether. Dr Carney says it would be wrong for regulators to ignore the consequences for the charities and businesses involved in remitting funds from overseas, and calls on authorities to understand the scale of the problem and its causes.
“Authorities must ensure that they provide a clear and consistent interpretation and enforcement of international standards. They should work with the financial industry to pursue technical measures, such as the global Legal Entity Identifier system, which standardises identification, and Know Your Customer platforms that help avoid duplicating due diligence work. Both solutions are already being implemented, but they need regulators’ support to reach the scale needed to achieve more reliable due diligence.” Dr Carney adds: “The financial abandonment of whole groups of customers — or even countries — is not something that can be ignored by the members of the G20.”
Sir David Walker speaks out against ring-fencing regime
In an article for the Telegraph (B4), former Barclays chairman Sir David Walker has claimed that bank ring-fencing is “unnecessary” and “actively harmful to the UK”. Sir David writes: “It is hard to see how the complex structural re-engineering involved will further boost the resilience of banks beyond the new capital and leverage requirements that have been put in place elsewhere. Ring-fencing’s role in effective resolution – crucial to protect the taxpayer – is also now redundant as banks adopt comprehensive standalone mechanisms as part of the EU Recovery and Resolution Directive.” He adds there is an “urgent need for review because banks are already beginning their complex and expensive implementation programmes”.
Click here to read BBA Executive Director Paul Chisnall’s views on the Prudential Regulation Authority’s latest policy statement on implementing the ring-fence.
The City is an economic powerhouse
Research has found that the City of London is now home to more than 15,000 companies and generated £45 billion for the economy last year, the Telegraph (B1) reports. The study – by the Centre for Cities and Cambridge Econometrics on behalf of the City of London Corporation – predicted that this will rise to £61 billion a year by 2025 as the Square Mile expands by 2.8% a year. Jobs and productivity have fuelled this growth, the report suggests. City AM (p1) adds that a boom in finance and technology hiring will create 145,000 new jobs in central London over the next decade, including an additional 39,000 workers in the Square Mile.Read more
Government to set out plans for selling bank shares
The FT (£, p1) speculates that Chancellor George Osborne could set out his plan to sell off the Government’s stake in RBS in next week’s Mansion House speech. The paper states that RBS is “gearing up for a share sale by inviting banks to pitch for an enlarged corporate broking role that includes acting as privatisation advisers”. The article suggests that a sale could commence in the fourth quarter of this year. In addition, HM Treasury announced yesterday that it will extend the drip-feeding of Lloyds shares until the end of the year (Times, £, p39). The Government also committed to selling a portion of its stake – which has now fallen to 19% – to individual investors within the next 12 months. A retail offering would come with a 5% discount. However, CityAM (p1) reports that UK Financial Investments is against such a sale due to the reduction in revenue for the Treasury.
New Economics Foundation: “Banking reform is serious unfinished business”
A report published by the think tank New Economics Foundation suggests that the UK’s financial system “remains at risk of upheaval” despite the regulatory changes undertaken since 2007, and places the strength of the UK’s financial system fifth out of the G7 bloc (Guardian online). The report calls for more competition in the banking sector, full separation of investment and retail arms and an increase in peer-to-peer lending. The article quotes the BBA’s response to the report: “The UK authorities are rightly regarded as being at the forefront in implementing new European rules that will ensure investors in banks – and not taxpayers – bear the cost of any future bank failure.”Read more
BSB looks at professional certification for bankers
In an interview in the Independent (p16), Dame Colette Bowe, the head of the new Banking Standards Board, suggests that the organisation might consider introducing professional certification into the banking industry. She says: “I think it is perfectly possible to establish a more widely accepted concept of professionalism in banking while acknowledging that people in different parts of the industry do different things. It is going to be an early area of focus for us. What it boils down to is not just having a business card that has got some letters on it, but actually knowing the person you are dealing with has a high standard of professional training.”
CBI: UK growth has “cranked up several gears”
Growth in the UK economy has “cranked up several gears” according to the CBI. Its survey of more than 800 companies found very good growth in the services sector which recorded its fastest growth in business volumes since February 2006 (BBC). Saturday’s Express (p2) reported on the BBA’s figures which showed that businesses and consumers have started borrowing more as confidence improves across the UK economy. However, the Guardian (p16) reports that the EEF has cut its growth forecasts for the manufacturing sector, which has been dragged down by a slowdown in the North Sea oil and gas investment.Read more
Investors highlight cost of regulation
Banks are coming under increasing pressure to control the soaring cost of compliance and regulation, the FT writes (£, p16). The paper says some banks are paying up to $4 billion a year to cover the cost of checks to prevent money laundering and giving more data to regulators for stress tests, but bankers say their ability to reduce compliance costs is severely constrained. One investor is quoted saying: “All I see are cases where compliance costs are going up, and that is a massive challenge for these banks. Every time I see the management teams, it is the first thing I raise with them.”
Patrick Lemmens, a senior portfolio manager at asset manager Robeco, adds: “There is a very clear risk banks will overspend,” adding that it is difficult to know what makes up banks’ regulatory and compliance spending. However, Justin Bisseker, a banking analyst at Schroders, is quoted saying: “Knowing the amount would not tell me if it was being spent well”, and he believes it is “very dangerous” to benchmark banks given their different structures and needs.
Lending to businesses up
The Telegraph (B1) says net lending by banks to small businesses under the Funding for Lending Scheme grew by £635 million in the first three months of 2015. The paper quotes the Bank of England saying: “The improvement in corporate credit conditions in part reflects the significant fall in bank funding costs that has occurred since the launch of the FLS.” Separate figures released by the BBA yesterday showed that net borrowing by businesses has been positive in three of the last four months. The FT (£, p3) adds that says the news was welcomed by economists, and quotes Howard Archer, chief economist at IHS Economics saying: “The BBA data also shows there is a pick-up to lending to businesses, and that is certainly encouraging. It suggests that businesses are looking in decent shape and are becoming more ready to invest – that is obviously important for balanced growth.”
Wheatley discusses plans for banks’ management
Financial Conduct Authority Chief Executive MartinWheatleyyesterday denied he wants to go “scalp hunting” as he discussed plans for the regulator’s new “Certification Regime”, which will make the managers of failed banks prove they took reasonable steps to mitigate risk (City AM, p5). Speaking at a conference on restoring trust in financial services, Mr Wheatley said it is “common sense” to make managers admit to which departments they have been responsible for. The FT (£, p4) adds that the FCA is replacing the new regime – which will replace the existing Approved Persons Regime – will place clearer expectations on firms to support propriety standards for anyone in a so-called “significant harm function”.Read more
British businesses and consumers put their foot on the gas
The BBA’s latest High Street Banking statistics out this morning show an increase in business borrowing, mortgage approvals and unsecured borrowing. Commenting, BBA Chief Economist Richard Woolhouse said: “British businesses and consumers have started to put their foot on the gas. There appears to be broad confidence about the economy, which the banks are supporting through affordable credit, leading to rises in borrowing across the board. Business lending has risen in three of the first four months this year indicating that we might have reached a turning point. There was a significant pre-election jump in mortgage approvals which we would expect to continue in the coming months. There was a sharp rise in the amount savers deposited in their bank accounts and also in the amount people are borrowing through personal loans and credit cards. This suggests that consumer spending will continue to drive the British economy forwards.”
The key findings were that: net borrowing by businesses has been positive in three of the last four months; house purchase approvals were higher than last month and 3% higher than in April 2014; deposits with high street banks strengthened in April; and unsecured borrowing is growing at its highest annual rate, of 4.9%, since autumn 2010, reflecting strong consumer confidence.
PRA sets out next steps on ringfencing
The Prudential Regulation Authority yesterday published a policy statement on implementing the ringfencing of retail banking operations from investment banking. CityAM (p7) reports it as the Bank of England “holding firm” on the proposals and rejecting calls for the legislation to be watered down. The article states that: “Banks were not surprised by the document, and one critical banking insider noted: “It just sets out how hideously complicated it all is.” But industry body the British Bankers’ Association (BBA) welcomed the publication as “a significant step towards the completion of the regulatory regime”.
“The policy statement is granular in nature and clears up a good number of potential ambiguities and gaps in understanding of the planned new arrangements in the areas covered,” wrote the BBA’s Paul Chisnall. “There is only so far banks can go, however, before they have full sight of the regulatory regime.”
Read Paul Chisnall’s full views on the policy statement on the BBA website here.
Cameron hopes for “extra quick” EU referendum
Prime Minister David Cameron yesterday welcomed the fact that an EU referendum bill would have all party support and said that he looked forward “to seeing it make its way through both houses in extra quick time”. The proposed question in the referendum will be: “Should the United Kingdom remain a member of the European Union?” (Independent, p15) In the Telegraph (p20) James Kirkup predicts that the House of Lords could hold up the passage of the bill, warning: “their scrutiny can delay it until a quick vote in 2016 is impossible, a potentially serious problem for a Prime Minister who currently calculates that an early vote is the best way to achieve his preferred result of a vote to stay in.”
EU puts common consolidated corporate tax base back on the agenda
The EU has relaunched plans for a common consolidated corporate tax base across Europe in an attempt to crack down on companies taking advantage of different tax regimes across the single market. The FT notes that the measure would need the support of all 28 EU member states and that the measure would be opposed by the UK and Ireland. It quotes the Treasury saying: “Direct taxation is a matter for EU countries, and any direct taxation matters require unanimity across all EU countries” (FT, £, p8).
CMU to boost less developed EU economies
Think-tank New Financial has said that the EU’s less developed economies are likely to be the biggest winners from any reforms brought in under Capital Markets Union. It added: “In many countries, capital markets activity would more than double if their markets were as developed as the European average — providing not only valuable additional investment but an alternative to relying on a struggling banking system for funding” (FT, £, p30).Read more
BoE defends ringfencing
Former Barclays chief executive and current external member of the Bank of England’s Financial Policy Committee, Martin Taylor, has defended ringfencing and dismissed the idea of UK headquartered banks being forced overseas by tough regulation (CityAM, p5). In a speech he criticised those “calling for a regulatory softening [that] is both structurally wrong and conjuncturally wrong”. He was responding to voices arguing for a review of whether ringfencing is now needed or whether it could be classed as costly and unnecessary now that banks have become more stable following the crisis. The article quotes BBA Executive Director of Financial Policy, Paul Chisnall: “The bigger concern for the banking industry is the variety of bank specific taxes that have been introduced in recent years, and in particular the Bank Levy, which we feel are damaging the competitiveness of the UK as a place to do business.”
EU referendum “threatens inward investment”
A new poll by accountancy firm EY warns that the UK’s “pole position” in Europe for inward investment could be threatened by plans for an EU referendum, which could be “disruptive” and create a slowdown (Sky News). Nearly a third of investors surveyed said they would either cut or freeze planned investments up to 2017, according to EY’s UK Attractiveness Report. Steve Varley, EY chairman and managing partner in UK and Ireland, commented on the survey: “Global investors have a strong perception of the UK as an attractive place to do business. The message that Britain is ‘open for business’ is getting across loud and clear to many existing and potential investors worldwide, but new strategies need to be developed to stay ahead in such a competitive market”. Mark Gregory, EY’s chief economist, said: “To maintain its position as Europe’s number one destination for inward investment, the UK must broaden its appeal outside of London.”
New government plans set out today
The Queen’s Speech will set out the new UK government’s “vision” today and CityAM (p5) takes a look at what we can expect – including moves towards an EU referendum, an enterprise bill to cut red tape for SMEs and a housing bill to help housing association tenants purchase their homes.
Sky News also gives a potted guide to the format, history and reason for having the Queen’s Speech.Read more
FEMR to give more powers to regulators
The outcome of the Fair and Effective Markets Review will include an extension of the ban on equity market manipulation to trading areas such as foreign exchange, according to FT (£, p1) sources. The Review will call for “more powers to ban individuals implicated in misconduct and call for harsher sentences for insider trading”. Proposals will also include a ban on the “front-running” of client orders. The article adds that authorities are considering a “code of conduct that would apply across FICC [fixed income, currencies and commodities] businesses, overseen by a market standards body”. The results of the Review are to be formally announced on 10 June by Chancellor George Osborne and Bank of England Governor Mark Carney. You can read the BBA’s response to the FEMR consultation here.
Banks’ warning over new trading risk models
A letter from three international financial bodies to the Basel Committee on Banking Supervision has warned that proposed new risk-calculation models could make markets more volatile and unstable, reports the FT (£, p18). “Investor participation in certain markets is likely to fall further thereby negatively impacting on their depth and efficiency,” writes the International Swaps and Derivatives Association, the Global Financial Markets Association and the Institute of International Finance. The letter also warned that higher capital requirements will increase issuance costs and have a negative impact on secondary market liquidity, adding that the new rules could “discourage some market participants from hedging their risks, raising the prospect of increased market volatility and significant financial instability.”
Regulatory pendulum “swung too far in one direction”
The Sunday Times (£, p9) looked at the cost of regulation which has led to some banks to investigate the possibility of moving their headquarters out of the UK. The article stated that the Bank Levy and upcoming EU referendum “are diminishing the City’s status among global players”. The paper quoted a senior official at a British bank saying: “The PRA understands the complexities of banks and sees that the City of London is going to be harmed by all this.” The article noted that the BBA has commissioned a report into the competitiveness of the UK banking sector, and quoted BBA CEO Anthony Browne saying: “The regulatory pendulum has swung too far in one direction. There now needs to be a focus on not throwing out the baby with the bathwater”.
Authorities working on effects of Brexit
Saturday’s Guardian led with news that Bank of England officials are researching the financial effects of the UK leaving the EU. The existence of the work – dubbed Project Bookend – was made public after details were accidentally emailed to a Guardian editor. The project is being led by Sir Jon Cunliffe, deputy governor for financial stability.
Former Treasury Select Committee member Mark Garnier told Monday’s FT (£, p3) that MPs would call on bank officials to discuss the project, adding: “I think what will definitely happen is that the committee will look into the implications of the EU referendum on the banking system”.
Monday’s FT (£, p1) reported that Chancellor George Osborne is “gearing up for a new Treasury study of the economics of British membership of a reformed EU”. The article stated that the economic benefits of being part of a single market is likely to be “the most powerful argument for staying in” for Prime Minister David Cameron.Read more
Bank customer satisfaction rate high
Research commissioned by the Competition and Markets Authority (CMA) has shown that only 4% of customers are dissatisfied with their personal current account (Telegraph, B1). The polling was conducted as part of a wider review by the watchdog into competition in the banking market which will reveal its early findings in September this year. A BBA spokesman said: “[Yesterday’s] statement takes a positive of view of recent innovations in retail banking and shows that more than 90% of current account customers are satisfied. Last year we published a series of ideas to help new banks set up and smaller players to grow which we hope will be taken up by regulators and politicians. In addition, there are now even more new and aspiring entrants to the banking market.” Read our full release here.
France objects to Britain’s exemption
France has raised objections to a proposed “carveout” for Britain within bank structural reform plans, on the grounds that it is “illegal, damaging to the common market and unnecessary” (FT, £, p10). The exemption from the European Commission’s proposals gave the UK a legal “derogation” on the basis that retail activities are ringfenced from investment banking. The French government made its objections known yesterday at a meeting to discuss the compromise, stating that they saw so-called “Vickers overhaul” as different to, and no substitute for, EU reforms.
Senior Managers’ Regime “not a witch hunt”
Andrew Bailey, chief executive of the Prudential Regulation Authority (PRA), has told top bankers to take more responsibility for conduct within their companies and emphasised that new Senior Managers’ Regime rules are “not a witch hunt” (Telegraph, B4). The regime, being introduced this year, is in response to the financial crisis and holds senior bank staff and some non-executives responsible for bad conduct. The PRA published a new set of duties for board members yesterday, and the Government recently introduced new criminal sanctions for “reckless misconduct” on the recommendation of the Parliamentary Commission on Banking Standards (PCBS). Mr Bailey said: “We do want to avoid what the PCBS described as the Murder on the Orient Express outcome when firms get into trouble, which is akin to the ‘everyone and no-one’ is responsible but everyone is connected to the event” (Telegraph, p4).Read more
CMA updates progress of bank investigation
The Competition and Markets Authority has this morning announced further details of its investigation into personal and small business banking. The updated issues statement summarises the investigators’ current thinking following visits to 11 banks in recent months. The CMA’s work is focussing on three “theories of harm”: the extent to which customers can switch, the extent of market concentration and barriers to entry. Today’s statement takes a positive of view of recent innovations in retail banking and shows that more than 90% of personal current account customers are satisfied. The CMA press release can be read here.
US authorities impose £4billion Forex fines
The US Department for Justice has announced that six banks are to pay more than £4 billion to settle allegations that their staff rigged foreign exchange markets. Loretta Lynch, the US Attorney General, is quoted in the FT (£, p1) saying the penalties were “fitting” considering the “pervasive harm that was done”. The paper’s Lex column describes the fines as “material, unfinished, unpredictable and possibly ineffective”, adding that “shareholders should be livid”.
Cashless payments overtake coins and notes
The BBC reports Payments Council figures showing that the number of cashless payments has for the first time been overtaken by those involving cards, mobile phones and other means. Cash transactions by individuals, businesses and financial organisations were found to now account for 48% of all transactions in 2014. The Council suggested that cash payments are expected to fall by 30% over the next 10 years.
Garnier sets out his stall to chair TSC
The MP Mark Garnier explains why he is considering standing as the next chairman of the Treasury Select Committee, in an interview with the FT (£ p2). He pledged to stop “banker bashing” and focus on boosting Britain’s financial services industry. A former Bear Stearns banker and hedge fund manager, Mr Garnier also said that he would prioritise helping indebted households cope with rising interest rates.Read more
Business group speaks out over EU referendum
The CBI has called on businesses to “speak out early” in favour of Britain remaining in a reformed EU, BBC News reports. Sir Mike Rake, the CBI’s president, will tell the group’s annual dinner that there are “no credible alternatives” to EU membership. Elsewhere, the FT (£, p2) reports that the Government’s pledge to hold a referendum on Britain’s membership of the EU will be at the centre of next week’s Queen’s Speech. The paper says Prime Minister David Cameron will publish the draft bill on the referendum next Thursday, the day after the State Opening of Parliament.
Yesterday, the BBA announced that it had asked Sir Hector Sants and management consultants Oliver Wyman to lead a review into the competitiveness of the UK on behalf of the banking industry.
BBA Chief Executive Anthony Browne told City AM that a swift decision on Britain’s membership of the EU was necessary because uncertainty was discouraging investment in British companies. “One international bank has made a board-level decision to move operations out of London if Britain leaves the EU,” he told the paper. His comments were also reported by Reuters, Herald Scotland, International Banker, the Economic Times and Arab News, and Mr Browne appeared on CNN last night to discuss the review.
Frans Timmermans, First Vice President of the European Commission, told the FT (£, p7) that he could only envisage a change in EU rules once he was “completely satisfied that we apply the existing rules and we haven’t done that so far.” There is speculation that Mr Timmermans may be asked by the Commission to work with Britain in its efforts to renegotiate its relationship with the EU. Mr Timmermans said: “I get the impression they [the UK Government] know perfectly well what they want, and we know that they are extremely, extremely efficient and good negotiators. Anything I’d say now would not improve my own negotiating position — if I were in a position of negotiating.”
Comeback for CDS?
Wall Street is considering reviving single-name credit default swaps (CDS) – a derivatives contract that tracks the risk of default by a company that sells bonds (FT, £, p15). Regulators clamped down on this market after the derivative was criticised for the role it played in the financial crisis, but today banks and investors are looking for ways to prevent volatility when interest rates rise. Supurna VedBrat, co-head of electronic trading and market structure at BlackRock, is quoted saying: “Single name CDS offers a clean and efficient way to express credit exposure which the current market structure of the underlying secondary corporate bond market doesn’t afford us.”
UK economy in deflation
The Consumer Price Index fell by 0.1% yesterday, bringing the UK economy into deflation for the first since 1960, the Telegraph (B1) reports. The paper suggests that cheaper petrol and food have continued to push down the headline rate, despite a pick-up in the price of oil. Chancellor George Osborne yesterday insisted that negative inflation should not be mistaken for “damaging deflation” and the Governor of the Bank of England, Mark Carney, said the negative inflation was likely to be temporary.
The FT (£, p28) adds that the pound responded to the news by falling by 1% to $1.55. Alan Wilde, head of fixed income at Baring Asset Management, is quoted saying the deflation data would offer the Bank of England more time to allow for wage pressure “and may even allow rates to remain unchanged for longer than the market currently prices”.
BBA denounces calls for bankers’ pay to be capped
BBA Chief Executive Anthony Browne yesterday responded to suggestions by former Number 10 director of strategy Steve Hilton that bankers’ pay should be capped. Appearing on the BBC Radio 4’s Today programme, Mr Browne said there had been an 80% reduction in cash bonuses and the proposals would cause “catastrophic damage” to a leading sector that was one of the biggest contributors to tax receipts. His comments were later quoted by a range of publications, including the Daily Mail, and the Independent.Read more