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.
Bonus rules could reach more companies
The European Banking Authority has said that rules that limit City bonuses should apply to more firms. It has put forward new restrictions on the allowances that a number of banks have introduced in response to the EU’s bonus cap (Telegraph, B1). The Prudential Regulation Authority has invoked a “proportionality principle” in a bid to limit the impact of the bonus cap. However, the paper reports that that in its draft guidelines published yesterday the EBA said the bonus rules should apply to all credit firms – largely banks and building societies – as well as their subsidiaries. Around 950 firms regulated by the Financial Conduct Authority and a further 200 for which the Bank of England has responsibility would be captured by the rules. There have been sweeping changes in recent years to the way bonuses are awarded, and the bonus pool has halved since 2009. The bonus pool for bankers in the UK and the wider Europe, Middle East and Africa region has fallen by 50% since 2009, the McLagan Review of the Reward Environment in the Banking Industry, found in January 2015.
Recovery gains pace
The UK economy is set to expand by 0.6% in the three months to the end of March, the purchasing managers index (PMI) said yesterday (Times, £, p10). The paper says that after witnessing slower growth in the three months to December last year, economists now expect low inflation, rising wages and falling unemployment to power growth in 2015. It quotes Fabrice Montagné, UK economist at Barclays saying: “Companies remain very confident regarding their business prospects.” The Telegraph (B5) reports that increased confidence drove new business in the services sector at the beginning of 2015, and consequently jobs increased at the second-sharpest rate since records began nearly 20 years ago.
ECB to finalise latest QE plans
The European Central Bank’s governing council will meet in Nicosia today to finalise the details of a plan to buy €1.1 trillion (£798 billion) worth of government bonds (FT, £, p6). In an effort to restore growth and eliminate the threat of deflation in the region, the ECB and national central banks are likely to begin buying government bonds and the debt of eurozone institutions, the paper reports. The Daily Telegraph (B1) adds that ECB president Mario Draghi is likely to be questioned by council members on the open-ended nature of the asset purchases.Read more
ECJ upholds UK challenge on CCPs
This morning the General Court of the European Union upheld the UK’s challenge against the European Central Bank’s policy requiring central counterparties clearing euro transactions to be located inside the eurozone. The General Court ruled that “the ECB does not have the competence necessary to impose such a requirement on central counterparties involved in the clearing of securities” and so the Eurosystem Oversight Policy Framework is annulled. Read the Court’s press release here.
Carney defends BoE forex investigation
The Governor of the Bank of England rejected claims that the Bank “dodged criticism” over its role in the alleged manipulation of foreign exchange markets, reports the Times (£, p47). Dr Carney told MPs that new procedures put in place around escalation had uncovered “50 possible cases of misconduct, 42 of which have been passed on to the Financial Conduct Authority”. The Bank has increased the number of people working on market intelligence from 10 to 15, supported by additional staff, after the Governor admitted that “there is an element of backlog here” (Independent, p19).
Jenkins calls for end to free banking
Barclays Chief Executive Anthony Jenkins has argued that the end of free banking would be a “step forward” for customers, writes the Mail (p10). In an interview with ITV News, he said that “not having a price point around a current account is probably not helpful for consumers”. However, he stated: “It’s difficult to achieve of course because the banks can’t do that. It would probably have to be regulated or legislated.”
Warning over bank security
A cyber security firm warned the Financial Conduct Authority last year about a loophole in a bank’s security which could have given hackers access to their current accounts, according to a letter seen by the FT (£, p1). Bronzeye identified to the regulator a weakness involving the two step verification process used by the bank, “similar to a flaw in bank security systems identified last month by the Russian cyber security company Kaspersky”. In the letter, Bronzeye states that other banks using two-step verification software “would probably be vulnerable”. Read the BBA’s report into the cyber threat to banking here.Read more
TSC wants extension of pay rules
The Treasury Select Committee has called for rules on remuneration to be extended to all staff covered by the Certification Regime, reports CityAM (p2). According to the paper, this could see the number of staff who receive some of their bonuses in shares with a proportion deferred for a number of years double to 20,000. The paper states that this would “make the UK rules unusually tough”. Committee chair Andrew Tyrie said: “The Government continues to resist the application of remuneration rules to certain key banking staff – staff who are in a position to cause serious harm to markets, to their bank or to customers…It is essential for the protection of shareholders and customers that remuneration standards of some sort apply.”
EBA delays stress test
The European Banking Authority has this morning announced the next EU-wide stress test has been delayed until 2016 (FT, £). However, the authority will run another transparency exercise, similar to that performed in 2013. The EBA said: “The decision not to run an EU-wide stress test in 2015 was driven by an acknowledgement of the progress that EU-banks have made in strengthening their capital positions in response to the 2014 asset quality reviews and EU-wide stress test.”
BoE criticised over forex investigation
The Bank of England set “very low tests” in its investigation over its role in the alleged manipulation of foreign exchange markets, according to one barrister (FT, £, p3). Charles Béar QC, commissioned by Conservative Treasury Select Committee member Jesse Norman, found that the inquiry’s “narrow terms” of reference led to inadequate scrutiny of Bank staff. Mr Norman states that the opinion is a “damning criticism” of the Bank’s handling of the inquiry, and suggests that the “inquiry’s narrow terms of reference raise the possibility that the report may have been deliberately commissioned in order to shield bank staff from criticism.”
Housing market on the turn?
Nationwide’s data on the housing market reveals that the average house price fell by 0.1% in February 2015, reports the BBC. The pace of annual house price growth slowed for the sixth month in a row to 5.7%, the lowest since September 2013. However, Bank of England figures released yesterday show that mortgage approvals were up to 60,786 in January, “hinting that the slowdown in the market could be coming to an end” (CityAM, p11). The Evening Standard suggests that this echoes the BBA’s High Street Banking figures which also revealed a slight increase in the number of home loan approvals.Read more
Politicians call for higher bank taxes
Danny Alexander, Liberal Democrat Chief Secretary to the Treasury, has outlined plans for a new £1 billion a year tax on banks in the UK. The tax would be set at 8% of a company’s profits and it would be designed so that banks would not be able to off-set losses from previous years against the tax. The Lib Dems will call for the measure to be in this year’s Budget, in addition to the bank levy, but if it is not accepted by the Conservatives they will put it in their manifesto for the General Election. The BBA is quoted in the Telegraph (B1) saying: “Banks in the UK already pay more tax than any other industry. The tens of billions of pounds the banking sector pays each year make a major contribution to funding schools and hospitals across the country. Introducing yet another tax on banks will not improve financial stability.”
The Sunday Express (p57) reported that government sources have suggested that the Coalition could increase the bank levy again in this year’s Budget.
CBI wants review of anti-money laundering rules
The CBI has warned that anti-money laundering regulations could be hindering medium-sized businesses when they try to get finance and has called on the next government to review them after the next election. The Telegraph (B3, not online) quotes CBI director-general John Cridland saying: “Of course we must have robust anti-money laundering regulations but the detailed application can be cumbersome and complex and is acting as a brake for businesses wanting to sell their products and services around the world.” The CBI also calls on the next government to promote a new market for privately placed debt which it estimates could be worth up to £15 billion.
Senior Managers Regime changes cause controversy
The Sunday Times (£, B12) reports that corporate governance experts are divided over the regulators’ decision to exclude some non-executive directors from the Senior Managers Regime. It quotes one warning of “two-tier” boards and another saying it could undermine a board’s “collective responsibility”. Read the BBA’s response to the initial consultation here.Read more
Business groups voice concerns over Chinese cyber security rules
Six business groups have written to the European Commission to voice concerns about “worrisome” Chinese regulation, which is expected to force local and foreign banks to use IT equipment deemed “secure and controllable” by Beijing, the FT reports (£, p22). In a letter seen by the paper, the business groups warn that the regulations could “close the door for many foreign IT companies to the Chinese banking IT market”. The groups go on to warn that the policies could undermine the ability of European companies to participate in the IT market in China and to serve banks, and could “hurt the development and integration of the Chinese banking sector in the global market”.
Fair and Effective Markets Review: Regulation is “on the table”
Minouche Shafik, Deputy Governor for Markets at the Bank of England, yesterday launched a “root-and-branch” review of the way the Bank will deal in future with major financial institutions (Times, £, p42). In an interview with the paper, Dr Shafik says there are already some “clear messages” coming from the Bank’s Fair and Effective Markets Review, and that market practitioners know there is a problem. She adds: “We have not taken regulation off the table.” The consultation has now closed and the Bank will publish its recommendations in June. The FT (£, p1) adds that the Bank has vowed to improve its methods of collecting market intelligence after criticism by Lord Grabiner QC, who was appointed to investigate whether BoE officials knew of attempts by FX traders to manipulate the market.
German Parliament to vote on bailout deal
The Bundestag is expected to agree to extend the eurozone’s bailout of Greece today, but MPs’ endorsement of the deal will be “grudging” and “reek of suspicion” of Greek Prime Minister Alexis Tsipras, the Guardian writes (p31). The paper reports that at least 25 of Chancellor Angela Merkel’s 311 MPs will oppose or abstain on the Greek rescue vote, and patience with Greece is running out in Berlin. It quotes German tabloid Bildzeitung, which yesterday said “there can be no reward for cheek”. The Germans expect the Greeks to be grateful for the €240 billion (£175 billion) rescue, but instead they are seen to be impertinent, the Guardian adds.Read more
Bank deposits fall as savvy consumers take up pensioner bonds
The BBA released January figures on high street lenders, which found that there had been a sharp drop in deposits as customers sought to take advantage of the attractive rates offered by the Government’s pensioner bond scheme. The Mail (p73) writes that older customers pulled £6.3 billion out of their savings and current accounts due to these bonds becoming available through NS&I on 15 January. The Mirror (p20) reports that personal borrowing increased by 3.9%, the highest since 2008 and quotes BBA Chief Economist Richard Woolhouse saying: “There continues to be strong demand for personal borrowing, which is at its highest levels in recent years.”
The Telegraph (B5) focuses on mortgage borrowing, which didn’t pick-up in January and was 11% down on the same period in 2014.
Bank of England warned about “too big to fail”
Professor Julia Black of the London School of Economics warned Bank of England officials yesterday against “believing their own rhetoric” about ending the threat from too-big-to-fail banks. Speaking at the Bank as governor Mark Carney launched his new research agenda, Professor Black said that there was still no real alternative to taxpayer bailouts in the event of another financial crisis. She said: “We know we can handle the failure of a national bank. We know we can’t handle the failure of a multi-national bank in a global systemic context. Resolution of too-big-to-fail is a political decision. It is not a measure.” The academic also warned that a resolution regime that forced shareholders and creditors to pick up the tab for any failure “would breed complacency” and showed scepticism about global co-ordination between regulators in the event of a crisis (Times, £, p41).
US companies take advantage of low borrowing costs in Europe
The FT (£, p32) reports that US corporate borrowers are increasingly looking to Europe in order to take advantage of low borrowing costs and demand from investors. The paper writes “the rush by US companies comes as bond investors in Europe are being challenged by an increasing universe of government debt trading with a negative yield or a fixed rate of return barely above zero per cent, thanks to the European Central Bank’s aggressive stimulus policies”. European bond investors are finding that their need for a higher yield is being met by the growing numbers of US firms looking to the other side of the Atlantic for funding.Read more
Nouy warns of need for more capital and new rules
Danièle Nouy, President of the Supervisory Council at the European Central Bank, has told the FT (£, p1) that eurozone banks could have to raise more capital and has suggested there could be further harmonisation of capital rules. She said: “Some banks still have to get more capital. It’s not so much about how much [capital] it’s about the definition of capital. There are too many, in my view, national options in the definition of capital in Europe and we have to address that. [ . . .] We may have to go to the legislature, to the European Parliament, to ask for more harmonisation in regulation.”
May praises bank “leadership” over tackling crime
Yesterday’s Evening Standard (p4) reported that Home Secretary Theresa May has praised the UK banking industry for agreeing to work more closely with law enforcement agencies in order to share information and help tackle organised crime. She said: “I’ve seen real leadership from the banks. Making the UK’s financial sector even more hostile to criminals is clearly as much a priority for them as it is for government and law enforcement agencies.” The article quoted BBA Chief Executive Anthony Browne saying that the new system would see banks play a “leading role in sharing key intelligence to help protect our customers from fraud and catch sophisticated criminals. This will help us to make sure that London has one of the toughest regimes of any financial centre in the world.”
Labour to extend bonus tax to allowances
The FT (£, p2) reports that the Labour Party will today restate its plans to introduce a new tax on bank bonuses and that it will also apply this to “allowances paid by banks which attempt to get around the EU bonus cap”. The article reports that the tax will use the same formula as the 2009 bonus tax – a 50% levy on any discretionary bonus or bonus-like allowances above £25,000 paid by the bank. The article quote a BBA spokesman saying: “Since the financial crisis, there have been sweeping changes in the way bonuses are awarded and paid to bank staff. They are now largely deferred and subject to clawback if something goes wrong. The UK bonus pool has halved since 2009.” The party is holding an Opposition day debate on the issue in parliament today.Read more
Chancellor to announce new rules on tax evasion
Chancellor George Osborne yesterday signalled that a new law would be announced in the Budget next month which would see institutions who help clients evade tax face “major financial penalties”, writes the Times (£, p14). The Independent (p14) reports that those who enable tax evasion will “face the same penalties as those who benefit” – similar to the announcement which Chief Secretary to the Treasury Danny Alexander made at the weekend. However, the Guardian (p1) suggests that those who “aid and abet tax evasion and aggressive tax avoidance” will face “financial and civil penalties”. Mr Osborne told MPs: “Ahead of the Budget I set the Treasury to work on providing further ways to pursue not just the tax evaders but those providing them with advice. Anyone involved in tax evasion, whatever your role, this government is coming after you.”
BBA welcomes regulators’ exemption of junior NEDs from Senior Managers Regime
The BBA is quoted in a number of papers welcoming the decision of the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to include only the most senior non-executive directors in the Senior Managers Regime. The FT (£, p2) quotes Simon Hills, BBA Executive Director, saying: “We did […] express concerns last year that applying the new rules to all non-executive directors [NEDs] could have undermined their independence by making them too ‘hands on’”. The paper notes that the FCA accepted that there could be “unintended consequences” if all NEDs were subject to the liability rules. The Guardian (p21) also cites the BBA: “It is welcome that the regulators have responded by adapting their proposals to only include those senior non-executive directors who have specific responsibilities. This should ensure that bank boards still retain non-executives who are able to provide constructive but critical advice to the bank’s executive”. The new rules will be introduced in 2016, with the final date yet to be confirmed.
Greece submits economic reforms
Greek government officials submitted a list of economic reform plans to the European Commission “on time”, meeting Monday’s midnight deadline, reports EUbusiness. Measures include creating a fairer tax system, tackling tax evasion and tackling corruption. The BBC notes that the list “must be approved by international creditors on Tuesday to secure a four-month loan extension”. Handelsblatt reports on a four-page letter sent to the speaker of the Bundestag by German finance minister Wolfgang Schaüble, asking for the chamber’s support for the extension.Read more
BBA and charities launch new guidance to help customers struggling with illness
The Sunday Telegraph (B3) reported that the BBA, working with charities Macmillan, the Royal College of Psychiatrists and the Stroke Association, has drawn up new guidance to help bank staff give customers with long term health conditions the best possible service. The guidance sets out how bank staff can help ensure people with medical conditions are treated fairly and at their convenience. For example, this might mean speeding up standard banking procedures or taking the restrictions of their condition into account when helping them find suitable products.
BBA Executive Director Eric Leenders appeared on BBC Moneybox (5:15) to discuss the new guidance with the debt charity Stepchange. He said that it was about “developing staff to be better equipped to help customers” with long term illnesses.
PRA sets out new plans on accountability for non-executive directors
The front page of the FT (£) reports that the Prudential Regulation Authority (PRA) will today set out that senior non-executive directors of banks and insurers will be included in the new senior managers regime. The paper reports that bank chairmen, senior independent directors and respective heads of major board committees will be subject to the new rules. The article quotes Tony Woodcock, a partner at Stephenson Harwood, the law firm, saying that the new rules will mean: “We will lose some good people, and perhaps take on some of the B team instead. Their liability is greater than ever, not least because of the reversal of the burden of proof. Fines are likely to be significantly higher than before as the regulators seek to make examples at the top of the industry. Who needs that at the end of their careers?”
In a separate article in the FT (£, p13), the head of the PRA, Andrew Bailey says: “We recognise the responsibilities of non-executives are different from those working in day-to-day management positions; and it is not our intention that non-executives should take on executive roles, which would compromise their independence, as a result of these regulatory changes.”Read more
Crunch talks between Greek and German finance ministers today
Greek and German finance ministers will today meet in Brussels to attempt to solve Greece’s debt crisis. In a letter seen by the Financial Times (£, p1), Greek finance minister Yanis Varoufakis yesterday formally requested a six-month extension to its €172 billion (£126 billion) rescue package and vowed to bring the programme “to a successful conclusion”, subject to “mutually acceptable financial and administrative terms”. However, Germany rejected the request and said it was one of a series of clauses amounting to a “Trojan horse” designed by Athens to change the conditions it must meet to receive further aid available for finishing the bailout. The paper adds that Germany’s finance ministry said the terms set out in Mr Varoufakis’ letter were aimed at “bridge financing without fulfilling the demands of the programme”. The FT (£, p3) also quotes Slovakia’s prime minister Robert Fico saying he is “calm” about a possible Greek exit from the eurozone if the country refuses to honour its commitments.
FCA announces competition probe
The Financial Conduct Authority yesterday announced plans to investigate commercial and investment banking, a market it believes is worth £10 billion a year (FT, £, p3). The paper speculates that the way banks “bundle” products such as loans and revolving credit agreements with other more expensive services is likely to feature in the investigation. BBA Deputy Chief Executive Sally Scutt was quoted in the FT, Independent, City AM and Wall Street Journal saying that London’s markets were “one of the most competitive in the world”.
The FT quotes the CBI, who questioned where the demand for an investigation was coming from: “Members are not exactly banging down our door about the need for a competition inquiry in this market.” While the Institute of Directors welcomed the move, it also said the fund management industry should be more of a priority for investigation. The paper also quotes Simon Hunt, a London-based partner at PwC professional services, who said the UK market was not dissimilar to other international investment banking markets, and “banks approach their clients in the same way as other organisations do: they sell them some things at a loss so they can sell them other things at a profit.”
From this April, the FCA will have the power to fine banks up to 30 per cent of their global turnover if they are found guilty of collusion, but this would happen only in the event of an enforcement action. It is possible that the regulator could refer whole markets for further review by the Competition and Markets Authority, if it believes that competition is being stifled, the paper writes.
Demand for mortgages falls
The latest figures from the Council of Mortgage Lenders show there was a fall in demand for mortgages at the start of the year, with gross lending down 14% in January at £14.3 billion (Guardian, p26). The paper adds that despite a rise in housebuilding last year, the number of new homes was less than half the figure needed to keep pace with demand. The Independent (p55) says the news will cause embarrassment for ministers who have been claiming that the construction industry is booming and housing supply is coming into line with demand.Read more