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.
Osborne hikes Bank Levy and offers help to savers in pre-election Budget
George Osborne’s final Budget before the General Election dominates the news agenda, with support for a package of measures to help savers and concern that a rise to the Bank Levy will make one of Britain’s most important industries less competitive with its peers.
Anthony Browne, the BBA’s Chief Executive, describes the tax in the Mail (p8) as “good politics and bad economics”. “The latest increase in the Bank Levy will damage one of the most important sectors in Britain’s economy and our leading exporter,” Mr Browne told the newspaper.
Kamal Ahmed, the BBC’s business editor also quoted the BBA Chief Executive saying that the Bank Levy “is making many banks move work and jobs to other parts of the world, and is deterring international banks from investing in the UK.”
Andrew Hubbard, a tax partner at the accountant Baker Tilley also quoted in the Mail, described the combination of the Bank Levy rise and the withdrawal of tax relief on compensation payments as evidence that the industry had been “clobbered”.
Tom Aston, a tax partner at KPMG, tells the FT (£, p3) that these moves will cause “shrieking” in the Square Mile. “It is a huge slap in the face for the banking industry,” Mr Aston said.
In the same article Matthew Barling, PwC’s banking tax partner, says “a further £900 million [annual] increase in the Bank Levy will be felt acutely.”
Together these two tax changes are expected to cost the banking industry £5.3 billion over the next five years. However, the front page of the Telegraph’s (B2) business section reports that the Chancellor’s “bank raid” amounts to £9.28 billion when changes to tax deferrals and other reliefs are taken into account.
In an interview on the BBC’s Today programme this morning Ed Balls, the shadow chancellor, said he would not reverse any of Mr Osborne’s Budget measures.
Meanwhile, the Lib Dem Chief Secretary to the Treasury Danny Alexander, said this morning that he would like the banking sector to make a “further contribution” to the public finances.
Elsewhere in Budget coverage:
Chancellor to deliver final Budget before election
Many of today’s papers lead with speculation over what could feature in the Chancellor’s final Budget before the general election on 7 May. The Independent (p1) has learnt that George Osborne plans to announce that tax on income from savings will be abolished for millions of people. Mr Osborne will scrap the 20% savings tax paid by basic rate taxpayers, meaning that only the richest savers will pay tax on their savings, the paper reports. The Daily Telegraph (p1) adds that Mr Osborne will also announce the end of the annual tax return within five years, as HM Revenue and Customs will automatically collate data that will be gathered in a single “digital” tax account that can be accessed online at any time.
The FT (£, p2) says the Chancellor will also increase the rate of the annual bank levy. The Exchequer has a target yield of £2.5 billion. Joel Hills, ITV’s business editor, says the changes will mean that in the years to come the bank levy will raise more than £3 billion a year for the Treasury. However, he warns the change may not prove that effective as bank balance sheets have shrunk faster than anticipated. The Wall Street Journal reports that the Chancellor is resisting Liberal Democrat calls for an additional £1 billion annual levy on the banks. The paper quotes Dan Neidle, a tax partner at law firm Clifford Chance, saying that “there are serious grounds for believing that it confers a selective advantage to non-banks undertaking the same kind of activities as banks and if so it would seem to be illegal under EU state-aid rules”.
The Guardian adds that lower-than-expected inflation has given Mr Osborne “wriggle room” of an extra £6 billion, which he will use to wrongfoot Labour’s attacks on public spending and offer tax cuts to the middle class and low paid. The paper also says that Danny Alexander, the chief secretary to the Treasury, will on Thursday announce plans for a new offence of corporate failure to prevent economic crime, including aiding or facilitating tax evasion.
The Treasury is expected to outline more details of the Midata current account launch in the Budget, which will enable customers to compare the suitability of banks’ products based on their transaction history, according to Sky News. The Office for Budget Responsibility is also expected to raise its growth forecasts for this year from 2.4% to between 2.5 per cent and 3%, Money Mail writes.
Anti-money laundering rules
The Guardian quotes the BBA’s submission to the Treasury Select Committee on the impact of terror financing and anti-money laundering rules in different jurisdictions. The submission said: “The very robust stances of some regulators in major financial centres and the level of fines applied to foreign banks by US authorities, in particular for financial crime compliance failings, have been material to the very careful risk management approach of BBA member banks.” The paper adds that HSBC has written to account holders in Jersey as it complies with the new rules.
Fund managers optimistic about eurozone economy
A survey of 208 fund managers by Bank of America Merrill Lynch has found that the majority are “more bullish than ever” about European shares, the Times writes (£, p47). Sixty per cent more fund managers were “overweight” on eurozone shares than not, while 88% said that they expected the eurozone economy to strengthen over the coming year.
EU tax deal plans
The European Commission will today publish proposals on tax deals which it hopes will create a “self-policing club” by giving all EU tax authorities visibility into each other’s tax affairs, the Guardian reports (p24). The proposals – prompted by the so-called “LuxLeak” revelations – will compel EU member states to share information on private tax deals they have granted to multinational companies in a bid to clamp down on corporate tax avoidance. The Commission has set a target date of the end of 2016 for making the rules mandatory.Read more
Regulators outline rules for senior bankers
The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) provided further details of the new accountability regime for senior bankers yesterday. The PRA announced that those responsible for running the UK operations of non-European banks will be subject to the new rules and could be subject to “fines, public censure and bans” if found guilty of serious malpractice (FT, £, p3). The FCA also announced that investment banks will have to assess the fitness of their traders on an annual basis, although CityAM (p2) notes concerns by lawyers that the definition of a “trader” has not been clarified.
The FCA also said that it would consult further on the “presumption of responsibility” proposals, where managers have to prove they took reasonable steps to avoid any rule breaches. The Telegraph (B1) notes a number of factors which could determine mismanagement including how large and complex the company is and whether responsibilities were appropriately delegated. Martin Wheatley, chief executive of the FCA said that the new regime would give regulators “the tools to hold individuals to account” (Mail, p2).
Republicans seeks further changes to Dodd-Frank
The FT (£, p7) reports that senior Republicans are seeking “bank-friendly changes to Dodd-Frank [which] could garner enough cross-party support to overcome White House resistance”. The article notes that in order to gain bi-partisan agreement, any new legislation would most likely have to focus on smaller banks or community banks which have “strong local roots and a lot of sympathy from their representatives in Congress”. A spokesman said that draft legislation will be produced in mid-April by Republican chairman of the Senate banking committee Richard Shelby.
Speculation over Osborne’s “no giveaways and no gimmicks” Budget
With George Osborne delivering the final Budget of this parliament tomorrow, a number of papers look ahead to what the Chancellor might include. The FT (£, p2) suggests that the Chancellor has some “wiggle room”, largely due to falling inflation, low long-term interest rates and stronger than expected tax receipts. The Telegraph (p1) expects the income tax personal allowance to be raised to £11,000, and cites the EY Item Club’s forecast that the Office for Budget Responsibility will cut its projection for borrowing by £6billion in 2015-16. The Guardian splashes that the Conservatives are planning an inheritance tax cut for properties worth up to £1 million, although this is not expected to be announced in the Budget.Read more
Atom to use Post Office as branch network
Atom chief executive Mark Mullen is interviewed in CityAM (p12) about how the digital bank, which is due to launch shortly, plans to do a deal with the Post Office so that its customers who want to physically pay in cash can use its branches. This will mean that the bank will not have to set up its own branch network. He says: “The reason the one-stop shop became the model in banking is that it was difficult for consumers to move from one to another. Now, technology is breaking down those barriers. Why would we spend money on branches up and down the country when they all do the same thing?” He describes the Post Office as “a common utility” that can be used by the challengers, giving them a bigger effective network than any of the established brands. The article concludes: “If this model gives a series of challengers a truly national reach at a low cost, it could just inject the competition customers have been looking for.”
The Press Association reports that Business Secretary Vince Cable has said that he is close to agreeing a deal with the BBA to put in place a branch closure protocol for banks which will ensure that customers still have appropriate access to local banking services.
MPs urge banks to do more in Northern Ireland
The Northern Ireland Affairs Select Committee has released a report urging banks in the region to be less conservative when lending to businesses and to do more to keep rural branches open. The BBC quotes the BBA stressing that banks in Northern Ireland “want to be transparent” pointing out the industry will soon be publishing postcode level lending data for the province. Read the BBA’s full response here.Read more
US criticises UK over China link
The UK Government’s decision to join a new China-led financial institution, which could rival the World Bank, has been criticised by the US Government who accused the UK of the “constant accommodation” of China (FT, £, p1). The UK is the first G7 national to join the $50 billion (£33.6 billion) Asian Infrastructure Investment Bank. US officials said that the move was taken after “virtually no consultation with the US” at a time when the G7 was considering the best way to approach the new bank, though HM Treasury deny this and say that there was “at least a month” of discussion on the subject. According to the article, the US has concerns that a new generation of international development banks could challenge Washington-based institutions whilst China believes that the US has too much influence over the World Bank and the IMF.
Switching working for customers that use it
In a new report the Financial Conduct Authority has said that the Current Account Switch Service is working well for those that use it, but suggested that customer confidence could be boosted by improving publicity around it and exploring other options such as “account portability” (BBC). FCA director of strategy and competition Christopher Woolard said: “More needs to be done to raise awareness of the tools which already exist to enable customers to move around” and The Payments Council – the body that runs the service – said that there would be more advertising campaigns to boost awareness and confidence. The FCA’s polling showed that a “significant minority” of customers would be more likely to switch if they were able to keep their account numbers, like in the case of mobile phone numbers. This idea is supported by consumer campaigners and Economic Secretary to the Treasury Andrea Leadsom (Mail, p74). The FCA’s report said that it was important to recognise that account portability could only help reduce barriers to switching that relate to the switching process itself, andwithout other measures to encourage consumers to act, the impact of account portability alone may be limited.
Treasury call for review of FCA scheme
Economic Secretary to the Treasury Andrea Leadsom wrote to the FCA yesterday to ask it to re-examine its redress scheme for small and medium-sized businesses that were mis-sold interest rate hedging products or “swaps” to ensure that it was run fairly (Times, £, p55). Ms Leadsom asked that the results of any investigation be made public and that the review process be overseen by one of the regulator’s non-executive directors. This follows on from similar recommendations published by the Treasury Select Committee on Tuesday.
Responding to this, a BBA spokesman said: “Banks have fully co-operated with the regulator’s review of interest rate hedging products and have followed the process as agreed which has led to almost £1.8 billion in redress being accepted so far. The review has been overseen by independent experts and the regulator to ensure that banks meet the stringent review requirements. We will work with authorities on the next steps.”Read more
Rumours of TSB takeover talks
Sky News reports that Banco de Sabadell is planning to make a formal offer for TSB Banking Group plc. The Spanish bank is reported to have approached the board of Lloyds Banking Group which still owns 50% of TSB.
Rise of non-banks challenges established players in the US
The FT (£, p21) reports that SoFi, a San-Francisco based firm which started out as a lender of student loans, is looking to do $1 billion of prime mortgage lending by the end of 2015. It claims to have the first wholly online mortgage operation in the country and is targeting young professionals. The article says: “Its ambitions are typical of a new breed of nimble non-bank lender taking business from institutions weighed down by huge mortgage-related legal settlements, new rules which require them to carry more capital, and heightened scrutiny from regulators.” Last year non-banks accounted for a record 38% of the $1.2 trillion US mortgage origination market and Goldman Sachs is predicting that non-banks could take up to $11 billion out of the mortgage market from the banks each year. Ryan Nash, a Goldman analyst, said: “Though trends are still in their infancy, the total addressable market is large and share is shifting rapidly.”
Bank suggests slack in economy might be running out
The Bank of England has said that the rise in self-employment in the economy is not due to people being forced into working for themselves due to economic necessity. The data indicates that people are choosing to work for themselves rather than having to because of unemployment or cuts to benefits. This suggests that the economy might not have too much spare capacity left in the labour market – a sign that wages could start rising (Times, £, p45).Read more
European Parliament legislates to cap interchange fees
Yesterday MEPs voted in favour of a bill to cap the fees retailers pay to process debt and credit card transactions (City AM, p15). The bill on so-called “interchange fees” was passed by 621 votes to 26, with 29 abstentions and will come into effect in October. The paper says the cap will apply to cross-border and domestic card-based payments, which cost businesses around the EU an estimated €10 billion (£7.1 billion) a year. Under the terms of the law, the fees will be capped at 0.2% for debit cards and 0.3% for credit cards (BBC). The move was supported by retailer and consumer groups, who say it will lower costs for customers and businesses. BBA Policy Advisor Matthew Herbert explains here why the proposals are unlikely to save consumers money.
Digital passport for savings and investments
Work has begun on a “digital passport”, which financial services companies hope will speed up the process of opening savings and investment accounts (FT, £, p2). The Savings and Investments Policy project (TSIP) also hopes the new system will allow consumers to manage their finances in one place and to be able to centrally alter personal details. The paper reports that TSIP – a coalition of more than 50 companies and trade bodies – will pilot the scheme in 2016 and roll out the first stage of the project in 2017. Anti-money laundering rules currently mean that setting up a new savings or investment account can be a long process, as customers must turn up in person with documentation.
QE puts pressure on the exchange rates
The euro fell to a near 12-year low against the US dollar yesterday as the effects of the European Central Bank’s quantitative easing programme rippled through the global financial markets (FT, £, p1). The ECB’s €1.1 trillion (£794 billion) bond-buying scheme, coupled with an anticipated rise in US interest rates, saw the euro fall 1.4% to $1.1. The single currency also fell against sterling, to below 71 pence. The Guardian (p24) adds that the euro’s weakness coincided with concerns about Greece and growth in China. The FTSE 100 index fell 174 points and closed at 6,703 last night. Comments made by Greece’s Finance Minister, Yanis Varoufakis, a year ago were also broadcast in Germany yesterday. Mr Varoufakis caused alarm by saying his country would never repay its debts because it is the “most bankrupt” nation on earth and the bailout loans it received amounted to a “crime against humanity” (Times, p36).
MPs suggest bank break up
City AM reports that the Treasury Select Committee has suggested that breaking up the banks could be best for competition. In a report published by the committee yesterday, MPs said that “millions of consumers and small businesses have been getting a poor deal for decades because of a lack of effective competition and genuine choice in banking.” The Daily Telegraph (p1) adds that the news comes as the Competition and Markets Authority investigates competition in retail banking. Despite a number of challenger banks entering the market, the committee says there is “little evidence” they will offer “transformation in competition that the industry needs”.Read more
Should investment banking be like Wimbledon?
The FT (£, p19) looks at whether the decline in the size of British investment banks matters, or whether the “Wimbledon model” is right and as long as London is a world leader in investment banking, it doesn’t matter what nationality the banks in the market are. Commenting, the BBA’s Chief Economist Richard Woolhouse said “the important thing is that we maintain a vibrant investment banking market in London. In extremis, if you have a breakdown of global banking relations and lots of wars breaking out, the story might be different. In the context of the globalised world it shouldn’t matter that much. It’s the activity that matters.”
MPs call for new single pensions regulator
The Work and Pensions Select Committee has called for a new single pensions regulator to protect savers after the committee said it was not convinced that the Financial Conduct Authority was “sufficiently focussed” on pensions. In response, the FCA said it was “absolutely committed” to ensuring consumers were protected (FT, £, p4, Times, £, p46). There is also growing concern that the new pension regime that comes into force next month could open up a “fraud bonanza”, as criminals use talk of “pension freedom” to fraudulently obtain people’s savings (Guardian, p26). The Chancellor, George Osborne, writes in the Sun (£, p8) that “firms have risen to the challenge” to provide new products from next month.Read more
Coalition splits over new bank taxes
The Sun (£, p2) reports on a “bitter coalition row” over Liberal Democrat plans for a new 8% corporation tax on banks. The Lib Dems plan to use it to fund an increase in the income tax personal allowance but the paper reports that “George Osborne opposes the plan, insisting it could lead to a brain and cash drain as big names flee to New York”.
Warnings over London’s position as capital of derivatives trading
The head of one of the biggest derivatives exchanges has warned that the cumulative cost of regulation could hit London’s position as the pre-eminent global derivatives centre. Jeff Sprecher, chief executive of New York-listed Intercontinental Exchange, has told the FT (£, p15) regulation such as MiFID II “competitively hurts Europe.” His compay has invested millions in London but he warns: “I would never do that again in Europe. I’m betting that a lot of business will gravitate towards Asia.” He said that the cumulative effect of regulation means London-based contracts could in future “easily be 80 per cent more expensive”.
New CivilisedBank to target SMEs
The Times (£, p41) reports that a new bank – CivilisedBank – is to be set up this year targeting small and medium sized businesses in the South of England and the Midlands. The bank will not have any branches but will instead have a team of “roving” bankers who will visit businesses and offer current accounts with deposits, transaction banking, overdrafts, currency exchanges, investments, savings and loans. Chris Jolly, CivilisedBank’s chairman, said: “We think that small and medium-sized businesses really miss having a proper relationship manager. Someone they can get to know who can make decisions on the spot without having to refer everything to head office.” Read the BBA’s report on how to promote greater competition in banking.
The retreat of UK investment banking?
The Sunday Times (B5) looked at how UK investment banks are shrinking their operations. The article quotes BBA Chief Economist Richard Woolhouse saying that London’s status as a global financial centre was more important than having national champions: “Whether they are UK-owned investment banks or not is not the issue. The question is whether investment banking is taking place in London. American banks are taking market share from European banks, but in terms of London being attractive as a location, it remains strong.” In the Weekend FT (£, p12) former government adviser Giles Wilkes warns: “Britain should not wash its hands of investment banking but instead look for the good it could be made to do.”
Banks to be hit hardest by Brexit
“All sectors would suffer from the UK’s loss of voting rights in the EU, but for industries such as the financial sector the impact could be greater since the barriers to entering European markets could be increased by new EU regulations over which the UK has no votes.” It says that because the UK runs a surplus with the EU on financial services it would be more difficult to negotiate a beneficial agreement with the EU if the UK left. The FT article states: “Open Europe says Britain may have to choose between ‘third country’ status with restricted EU access or somehow remain part of the single market – like Norway – without any input into the rules of that market. It says there would be high initial impact on banks and other financial companies, which would lose their single market ‘passport’; they might have to establish subsidiaries to maintain access to the single market.” Leading fund manager Neil Woodford has warned that a referendum on EU membership could undermine investor confidence in the UK (Telegraph, B1).Read more
European judgment good for UK-EU relationship
Writing in the Telegraph (B2) BBA Chief Executive Anthony Browne considers the banking industry’s relationship with the EU in the wake of the judgment by the European Court of Justice that London’s euro clearing houses will not have to relocate to the eurozone –something the European Central Bank had long been arguing for higher value trades. Mr Browne says: “It was an all-too-rare victory for the UK government, which has become accustomed to defeats at the EU’s supreme court”. He goes on to praise proposals from the European Commission to introduce a regulated Capital Markets Union which “could power jobs and growth across the continent, by giving businesses better access to finance”. However, he criticises the idea of a Financial Transaction Tax (FTT) that “fragments the single market into two, with countries either in or outside the FTT area”, adding that “the FTT is a direct challenge to the UK vision of an open single market.”
Quantitative easing will begin in eurozone
Mario Draghi, president of the European Central Bank (ECB), is expected to launch a new €1.1 trillion (£794 billion) quantitative easing programme on Monday in order to accelerate recovery in the eurozone. The announcement sent the euro plunging to an 11-year low against the dollar (Times, £, p44). According to reports, on making the announcement Mr Draghi revised the ECB’s forecast for growth from 1% to 1.5% for this year, and to 1.9% for next. The FT (£, p31) writes that his “upbeat comments…provided a positive backdrop for stocks and government bonds across the region” and the FTSE Eurofirst 300 equity index rose by 0.8% to its highest close in seven years. The president did, however, warn that the next few months could still see negative inflation.
Obama leads concerns over Chinese cyber security rules
US President Barack Obama has voiced concerns over new rules from the Chinese government that have been branded “protectionism” and could shut the banking industry out of an important market (FT, £, p6). US trade representative Mike Froman has raised the possibility that China might be violating trade agreements if it implements new cyber security rules for the banking sector at the end of this month. US officials believe that the measures are actually more targeted at “keeping US businesses out of competitive markets than protecting citizens from privacy concerns.”Read more