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.
Theresa May calls for a snap election
Theresa May has announced plans for a general election on June 8, providing the proposal receives a two thirds majority vote today in the House of Commons. The announcement was met with optimism by the business community who see the election as an opportunity to ensure certainty during Brexit talks and consequently, a smoother exit (Telegraph, B1). The announcement also caused sterling to rise to its highest level in six months (i, p38).
Financial services firms are discussing a ‘metered, pay as you go approach’ to research analyst charges in compliance with MiFID regulation. Although estimated to save European and U.S asset managers more than $300 million (Bloomberg, online), there are concerns that this regulation will mean smaller firms struggle to cope with research costs (Financial Times, £, online).
IMF forecasts UK growth
The International Monetary Fund (IMF) has recognised UK growth performance as ‘stronger than expected’ and increased its growth forecast to 2% from 1.5% in January 2017. The UK is now the second fastest growing G7 economy, with the US taking first place (The Times, £, p39). Theresa May said this increase proved the ‘economic resilience’ of the UK, and ‘gave her the confidence’ to pursue a snap election (The Telegraph, B1).Read more
Breaking news: election announcement
UK Prime Minister Theresa May has called for a snap election on June 8 2017 to secure ‘strong and stable leadership’ to see the UK through ‘Brexit and beyond’ (BBC News, online).
Labour oppose high street bank closures
Labour will oppose the ‘epidemic’ of high street bank branch closures by introducing ‘legal obligations’, The Shadow Chancellor John McDonnell has said (The Independent, online). New bank laws will ensure banks retain a high street presence to help small businesses and customers in vulnerable circumstances. BBA’s Managing Director for Retail Eric Leenders said there has been a ‘digital revolution’ in the way we bank, however the decision to close a bank branch is ‘never taken lightly’ and banks are working in partnership with the Post Office to ‘make face-to-face banking available.’
Brexit discussions continue
The location of the London-based European Banking Authority post-Brexit remains undecided and will be ‘subject to exit negotiations’, the UK government has said (Reuters, online). Meanwhile, the German Chamber of Commerce and Industry has warned German companies located in the UK that they may be required to ‘make back’ tax payments after Brexit (FAZ, online). Despite skepticism from members of the European Parliament’s trade committee during ongoing discussions, International Trade Secretary Dr. Liam Fox has insisted that the UK will participate fully in EU talks up until such point that the UK’s membership ends (The Sun, online).
Glass-Steagall Act 2.0
Thomas Hoenig, vice-chairman of the Federal Deposit Insurance Corporation, has proposed a ‘third way compromise’ in an effort to restore the Glass-Steagall law and financial deregulation (Financial Times, £, p4). Hoenig has proposed a ‘watered down version’ of the law inspired by UK ringfencing rules due to come into effect in 2019, that separate retail and investment banking activities.Read more
Bank of England warns on Fintech financial stability risks
Bank of England Governor Mark Carney has said that policy-makers must balance the social and financial stability risks posed by Fintech and the benefits it offers to customers (The Times, £, p46). Speaking at a Fintech summit yesterday, Carney said that, “there was no need to toughen up regulation for the sector as it has so far, ‘avoided undertaking traditional banking activities’”, however regulators may step in if it finds evidence of risks to banks’ funding (The Daily Telegraph, £, B5) .
EU securitisation talks stall
Politico (£, online) reports that negotiations over the EU’s proposed securitisation rules remain deadlocked after five trilogue meetings. Rapporteur for the securitization file Paul Tang MEP highlighted slow progress on the risk retention rate and third country access which would allow the UK to operate under the new framework after Brexit. Tang sad, “We’ve made some progress on technical issues … But it’s very clear the Council doesn’t want to touch upon third-country equivalence”, conceding that talks are likely to extend into June.
Fears over consumer debt
4 in 10 adults in the UK say they are concerned about their personal debts, according to a survey by insolvency practitioner R3, with 49% worried about their credit card debt (The Times, £, p44). The Wall Street Journal Europe (£, B8) reports that policymakers on both sides of the Atlantic have highlighted concerns over rising levels of household borrowing, noting US Fed data that suggests a quarter of US banks expect customers will struggle to meet debt repayments this year.Read more
Cybercrime linked to fall in share prices
The share prices of firms affected by cyber attacks fall by an average of 1.8% after news of the breach is reported, with global investors losing a total of £42 billion in value from cyber-related share prices falls since 2013 (City AM, p1). Research by Oxford Economics has found that investors in a typical FTSE100 firm would lose an average of £120 million following news of a cyber incident (The Daily Telegraph, £, B3).
European regulators to issues Brexit guidance
ESMA will issue guidance for EU27 regulators to avoid a regulatory race to the bottom from jurisdictions seeking to attract UK banking operations to the EU after Brexit (Reuters, online). The ECB has said that banks should allow up to six months to apply for new EU licences to transfer operations out of the UK after Brexit (Bloomberg, online).
MasterCard acquisition of Vocalink approved
The CMA has approved MasterCard’s acquisition of Vocalink, after agreeing measures to address concerns over competition. MasterCard and Vocalink will, “open up Vocalink’s existing network to a new services supplier, and contribute to the costs of those Link members that want to change to a new supplier” Financial Times (£, p20). Vocalink facilitates payments worth £6 trillion a year and owns the BACS system, Link and mobile payments app Zapp (The Times, £ p50).Read more
Firms consider alternatives to secure EU access
The Financial Times (£, p3) writes that financial services firms are investigating whether volunteering to adhere to EU regulations would allow them to retain access to EU markets, allowing them to “strike trading deals on a firm-by-firm basis or even for individual lines of business”.
EU leaders are expected to approve Tusk’s negotiation guidelines in Brussels today, before they are formally adopted on April 29 (Financial Times, £, online). No substantive revisions are expected to be made to the proposals set out in March, but there may be an attempt to strengthen the language regarding the rights of EU citizens.
UK Fintech growth continues
The FCA has published a discussion paper inviting views on how distributed ledger technology, which underpins blockchain and bitcoin, can be applied in regulated markets. Speaking at Innovate Finance Global Summit, Executive Director of Strategy and Competition at the Financial Conduct Authority Chris Woolard said the regulator was “committed to supporting innovation” (Reuters, online). His speech and the FCA discussion paper on blockchain are available online.
May supports use of sanctions against Russia
Prime Minister Theresa May has backed the potential application of further sanctions against Russia (Reuters, online). G7 leaders meet today to discuss potential sanctions, which could include travel bans and asset freezes against Russian officials, as well as measures targeting the financial, energy and defence industries (The Times, £, p6).Read more
FCA provides more insight on forthcoming review
The FCA is reviewing the way banks apply unauthorised overdraft charges, and will consider, “taking action to cut fees charged to customers who go overdrawn without approval and to ensure they are given clearer warnings of imminent charges” (Mail on Sunday, online). FCA Chief Executive Andrew Bailey has warned that this review, alongside potential changes to credit card charges, will place downward pressure on banks’ margins (The Daily Telegraph, £, B1).
UK Fintech finds global success
City AM (p11) writes that the UK has been ranked as the top global fintech hub by Deloitte, beating Silicon Valley and Tokyo. Ellen Burbidge, HM Treasury special envoy for fintech, has said that the UK must focus on three areas in order to retain pole position and encourage further growth; customer experience, financial inclusion and cyber security (City AM, p17).
Millennial attitudes to saving revealed
Research conducted by FT Money and BritainThinks has found that millennials prioritise saving for property over pensions, yet are unable to evaluate the benefits of different savings vehicles (FT Money, £, p8). The Financial Times notes that, “nearly half thought that higher-rate taxpayers would be better off saving in a Lifetime Isa than a pension, reflecting a lack of understanding over how pensions tax relief works”. Commenting on the findings Deborah Mattinson, BritainThinks founder, said that there is a clear ‘pecking order of priorities’ for millennials; lifestyle choices come first, followed by property and lastly, pensions.(FT Money, £, p9).Read more
IMF speculates on end to free in credit banking model
Banks may need to change their business model in response to persistent low interest rates says the International Monetary Fund (The Daily Telegraph, £, B1). Reduced demand for credit by households and businesses, driven by weaker growth rates and demographic change, could increase the need for easy-access accounts and payment products (The Times, p.40). The IMF suggests that banks will need to adopt a more “fee based and utility services” to remain profitable in future.
Bank of England consults on sharia-compliant deposit facility
The Bank of England has proposed creating a sharia-compliant deposit facility for retail lenders, reflecting efforts to attract business from the Middle East and South-East Asia (The Daily Telegraph, £, p4). Reuters (online) reports that the proposed model would be priced in a similar way to conventional tools, making it attractive for Islamic banks, while the Financial Times (£, online) notes that the Bank may also launch a sharia-compliant insurance facility in the future.
Gary Cohn backs restoration of Glass-Steagall Act
Gary Cohn, Director of the White House National Economic Council, has backed plans to restore the Glass-Steagall law and break up the investment and retail banking operations of the largest US banks (Wall Street Journal Europe, £, p1). Meanwhile, the ECB has called for tighter rules and higher capital requirements to be imposed on foreign bank branches including US and Asian banks (Reuters, online). UK banks operating in Europe may also be subject to these rules after Brexit.Read more
European Parliament agrees Brexit redlines
The European Parliament has approved Brexit negotiation guidelines, including a potential association agreement with the UK that would require close co-operation on tax and trade in exchange for retaining “close ties” with the EU. It rules out parallel talks on new trade and an exit agreement (Financial Times, £, online). Valdis Dombrovskis, Vice-President of the European Commission, has warned against a regulatory “race to the bottom” among the remaining EU27 members, highlighting the need for a, “level playing field across the EU” (Reuters, online).
Lifetime ISA launched today
BBC News (online) reports concerns by banks and building societies over the complexity of the new Lifetime ISA (Lisa), launched today, noting that in some cases savers could lose money in the short-term if they want to withdraw their cash. The product allows savers between the ages of 18 and 39 to save for their first home, or their retirement, in the same pot. However, a poll by the Financial Times (£, online) has found that this cohort of customers were, “unable to judge whether a Lisa was a better prospect than a pension”.
House prices to rise 25% by 2021
Average house prices are set to rise by a quarter in the next four years, according to data from the Centre for Economics and Business Research (CEBR) driven by, “a shortage of housing, better mortgage deals and the low value of sterling” (Daily Express, p1). The Daily Telegraph (£, online) reports the average UK home is expected to be worth £220,000 this year, rising to £272,000 by 2021. Commenting on the report, CEBR Economist Kay Daniel Neufeld said, “mortgage approvals, while still low by historical standards, are nearing post-crisis heights, boosted by low interest rates and favourable borrowing conditions”.Read more
Women overlooked for senior finance jobs
Men in senior banking positions outnumber women by three to one, according to analysis by the Financial Times (£, p1). Commenting on the findings, the paper cites unconscious bias and a perception that promoting women is considered riskier by senior executives. Commenting on the findings, BBA Chair Noreen Doyle said that, “women drop out mid-career because, ‘they look up and see no opportunity’”.
May: UK should have implementation phase after Brexit
Prime Minister Theresa May has said that there will be an implementation phase once the UK and EU have agreed an exit deal, recognising that, “business and governments need a ‘period of time’ to adjust to any new restrictions” (BBC News, online). Her comments have been interpreted as an indication that freedom of movement might continue after the UK has formally left the EU. Speaking on a trade mission to India, Chancellor Philip Hammond has said that he expects banks will retain the bulk of their operations in the UK, noting that, “our job is to make sure that objective is delivered, so the banks are able to continue to operate with the critical mass of their business based in the U.K.” (Bloomberg, online).
Bank of England warns on rising debt
The Bank of England has cautioned that a rapid rise in the level of consumer credit poses a significant risk to the banking sector if accompanied by a fall in underwriting standards (The Daily Telegraph, £, B1). Minutes of the Bank’s latest Financial Policy Committee noted that, “Consumer credit had been growing particularly rapidly. It had reached an annual growth rate of 10.9% in November 2016 – the fastest rate of expansion since 2005 – before easing back somewhat in subsequent months” (The Guardian, p18). The BBA’s latest data on high street lending is available here.Read more
Germany warns on Brexit timetable and City jobs
German Foreign Minister Sigmar Gabriel has warned that the UK and EU may be unable to reach an exit deal and agree new trade arrangements within two years (The Independent, online), while a committee of MPs has called for the Government to publish an assessment of leaving the EU without securing a new trade agreement (Bloomberg, online).
Speaking on BBC Radio 4’s Today Programme, Huburtus Vaeth, Head of Frankfurt Main Finance said that, “we expect almost a thousand jobs to move into Frankfurt – either being moved from London or newly set up in Frankfurt, and within a five year period of time, we expect 10,000 additional jobs to be created.”
Mixed reaction to FCA consumer credit proposals
The Times (£, p39) reports that the FCA’s proposals to limit credit card debt have been cautiously welcomed by City analysts and reflect regulators’ concerns over the pace of consumer credit growth and borrowers’ ability to repay their debts in an economic downturn. However, the proposals have been criticized as offering, “too little, too late” by consumer bodies (Daily Mail, p2). The Daily Telegraph (£, B4) summarises the impact of the proposed changes, noting that over 75% of credit card borrowers are not classed as “problem” debtors. The BBA’s latest data on high street lending, including credit card balances, is available here.
IMF highlights poor productivity as top risk to living standards
Christine Lagarde, IMF Managing Director, has called for urgent measures to increase productivity, noting that another decade of weak growth would undermine financial stability by making it more difficult to sustain private debt and public obligations (The Guardian, p18). Speaking at an event in Washington she warned that “leaning back and waiting for artificial intelligence or other technologies to trigger a productivity revival is simply not an option.”Read more