New UK banking standards body to be launched later this year

A new voluntary standards body for British banks and building societies will be launched later this year to 'raise standards and competence' within the sector.

 

Funded by the banks themselves at a cost of between £7m and £10m a year and relying on voluntary support rather than statutory powers, the new body will be set up as a 'champion for better banking standards'. It will be underpinned by a 'voluntary and aspirational' goal based on the credo that the banking industry must raise its own game in order to win back public trust.

 

Richard Lambert, former director general of the Confederation of British Industry and author of today's 'Banking Standards Review' report, is under no illusions about the difficulty (and potential controversy) that the new standards body will face in influencing the ethical standards of the same institutions that are providing its finance. According to the report, the new body will have to establish its credibility and independence from the start and 'will have to show that it is willing to set demanding standards, and to speak out when appropriate'.

 

Britain's biggest banks and building societies, namely Barclays, HSBC, Santander, RBS, Lloyds, Nationwide and Standard Chartered, pledged to set up the body in light of recommendations made by the Parliamentary Commission on Banking Standards last year amid a series of scandals involving benchmark interest rates, breaches of anti-money laundering rules and the misselling of complex financial products and loan insurance.

 

The new standards body will require participating institutions to commit to improving their culture and practices and publically report on their finances each year. Standards of good practice will be set, which may include whistleblowing procedures, staff values and behaviours and managing high-frequency trading.

 

At the end of his report, Lambert charts the future face of a banking utopia in 10 years' time and hopes that by then, 'balance sheets of banks doing business in the UK have been restored to health', more bankers have qualifications of one kind or another and 'politicians will have found other footballs to kick'.

 

Recognising the feat of the challenges ahead, Lambert does however concede that 'Realising this vision will require an enormous amount of heavy lifting by the banks and building societies in the years ahead, and by everyone who works in them. It will also require a different approach to their customers, and a much broader view of their role in society. But this is what the public has the right to expect. And it is what the country needs'.

 

Keen to build on and accelerate 'present momentum' on the issue, Lambert says that work to set up the new body should start immediately, with the next step being establishing an independent panel to appoint the new body's Chairman and approve the Chief Executive.  

Housing crisis threatens London's future business prospects

According to a report published today by the London Chamber of Commerce and Industry (LCCI), London’s housing crisis could seriously undermine the city’s economic competiveness and lead to problems for both employers and employees. The LCCI’s report argues that businesses relying on easy access to a skilled workforce could face staff retention and productivity problems if employees continue to be priced out of the London housing market and are forced to take longer commutes into work.

To overcome the capital’s chronic housing shortage, the LCCI suggests that more land should be secured for development and more builders with the capacity to deliver these homes should be available. Specifically, the LCCI recommends that all brownfield sites in London should be registered by the Mayor of London and private land owners would then be given four years to start building on such sites before a compulsory purchase would be enacted. Public sector landowners would have to start building within two years of being registered.

Public sector organisations are estimated to own as much as 40% of all brownfield land in London. Over 653 hectares are owned by the Greater London Authority, while a further 29.4 hectares are owned by the London Fire Brigade, 45.9 hectares by the London Legacy Development Corporation and 103.3 hectares by the Metropolitan Police Service. Other bodies like the NHS, local authorities and government departments also hold brownfield land in London, but do not publish this data. The LCCI suggests that ‘excess public sector land’ should be sold for development.

One controversial proposal in the LCCI’s report recommends that local authorities work with the Mayor of London to evaluate the potential to reclassify ‘a proportion of poor quality greenbelt land’ within the Greater London area for housing. The LCCI states that although any proposals to build on greenbelt land will ‘stir strong emotions amongst residents local to affected sites, the creation of truly “garden” suburbs in a handful of formerly private greenbelt areas could secure the delivery of the homes that London needs for generations to come’.

Over the last decade, London’s population has grown by around a million, faster than at any other time previously, to 8.4 million in 2013.  However, not enough new homes have been built to cope with this increase, with around 20,000 new homes a year being built in London over the last 10 years. To ensure that developers are producing the homes that the majority of Londoners need (those earning less than £50,000 and in the low to mid-housing price range), the LCCI suggests that the Mayor of London should set a new annual target for the creation of homes affordable to those earning up to £50,000.

LCCI’s survey of London businesses also found that 59% of employer respondents believed that increased housing costs have led to a greater pressure to increase wages for three in five employees. Rising housing costs have, according to the LCCI’s survey, also diminished businesses’ ability to recruit and retain skilled workers, with 42% of businesses stating that increased housing costs have had a negative impact on recruitment. One third (33%) of London firms surveyed believed that the lack of affordable housing in London affected punctuality and productivity. LCCI says that ‘employees that regularly endure travel fatigue are unlikely to be as productive and motivated as they could be, as long commutes have been found to make workers less happy and more anxious’.

Speaking about the LCCI’s proposals, LCCI’s Chief Executive, Colin Stanbridge, says, ‘There is no magic wand that can change this situation overnight but we urgently need to start building many more homes that ordinary Londoners can afford to buy or rent, otherwise we could find the workforce that is the capital’s greatest asset under threat’.

HMRC proposes selling taxpayers' financial data to third parties

Under proposals currently being considered by HM Revenue & Customs (HMRC), anonymised financial data from taxpayers could be purchased by third party private companies, researchers and public bodies. Last week, a spokesman from HMRC stated that ‘no firm decisions’ had been taken on the issue, but that the confidentiality of taxpayers’ data would remain of the utmost importance. Despite such reassurances, former Conservative MP, David Davis, has branded the proposals as ‘borderline insane’. Indeed, HMRC does not have an unblemished record when it comes to dealing with confidential data. In 2007, HMRC lost computer disks containing confidential details of approximately 25 million child benefit recipients.

According to HMRC documents, plans for ‘charging options’ are being considered, meaning that firms may be required to pay HMRC to access the data. Consultations for the relaxation of HMRC data-sharing rules began last July, but concerns have been raised over such plans in light of a similar and currently suspended NHS initiative proposing the sharing of anonymised NHS medical records.

Speaking to the Guardian about HMRCs data-sharing proposals, David Davis said, ‘The officials who drew this up clearly have no idea of the risks to data in an electronic age’. Meanwhile, Emma Carr, deputy director of civil rights campaign group, Big Brother Watch, has said, ‘Given the huge uproar about similar plans for medical records, you would have hoped HMRC would have learned that trying to sneak plans like this under the radar is not the way to build trust or develop good policy’. A spokesman from HMRC, however, stated, ‘HMRC would only share data where this would generate clear public benefits, and where there are robust safeguards in place’.

Calling time on premium rate calls for consumers

 

On 14th April 2014, the UK Financial Conduct Authority (FCA) hit out against financial services firms, including high-street banks, charging customers premium telephone rates for after-sales customer care or complaints and announced its plans to launch a consultation on the issue later this year. Many financial services firms provide, particularly for existing customers, premium rate telephone numbers for consumers which can turn out painfully expensive when a simple query unexpectedly turns into a drawn out call where customers are put on 'hold' or passed to a different department or more senior call-taker (sounding familiar?).

The FCA's consultation will propose that rules relating to charges for customer services or complaints are standarised and capped at the cost of a basic rate telephone call. The consultation will also seek to examine a range of proposals aimed at improving complaints handling by financial services firms, and, amongst other points, look at issues regarding complaints records and respond to recommendations proposed by the Parliamentary Commission on Banking Standards last year.  At present, companies authorised by the FCA are required to provide customers with a free channel for making a complaint, however, this could be in the form of an email address or by post rather than a free telephone number. The FCA's announcement yesterday refers to a campaign led by consumer group Which? calling for principles relating to telephone calls outlined in the forthcoming EU Consumer Rights Directive coming into force this summer  to be applied to financial services firms used by millions of consumers across the UK.

 

Christopher Woolard, the FCA’s director of policy, risk and research said yesterday, ‘It is not fair that customers often have to use expensive phone lines when calling firms to ask for help or to complain...We would welcome companies looking again at the rates they charge for phone calls ahead of our consultation’. Which? executive director, Richard Lloyd welcomed the FCA’s announcements stating, ‘We're pleased the FCA agrees customers shouldn't have to pay a premium to talk to their bank or insurer. Changing the rules so financial firms can only offer basic rate helplines would be a big win for the 87,000 people who supported our campaign’.
 

9 million Britons in serious debt according to Financial Conduct Authority

The UK Financial Conduct Authority (FCA) watchdog has today, 1 April 2014, announced that approximately nine million Britons are in serious debt, with the problem spanning across all income levels. In a report called ‘Consumer credit and consumers in vulnerable circumstances’ (the ‘Report’), which publishes findings from the Government’s Monetary Advice Service, has also revealed that of the 9 million Britons in debt, only 1.5 million have sought advice on their debts and 1.8 million are in denial about the state of their finances.  

According to the Repot, over the last two decades, the UK population has become increasingly more indebted, primarily owing to a significant increase in mortgage debts. In its entirety, the UK owes approximately £1,476 billion, an average of nearly £56,000 per household, £6,000 of which can be attributed to consumer debts. The most common factors contributing to unmanageable debt are, according to the Report, a change in circumstances and high levels of accumulated debt. Low savings, income volatility and high debt/income ratios have all been found to reduce people’s resilience to income shocks and increase the likelihood of problem debt occurring. The Report categorises borrowers into three distinct types, survival borrowers (who use credit for their day to day expenses), lifestyle borrowers (who use credit for large and/or one-off events) and reluctant borrowers (who tend to limit their use of credit) and suggests that debt problems can be further compounded by an individual’s skills, knowledge, confidence and biases, as well as through a lack of access to credit. Indebtedness has also been found to have a detrimental impact on people’s health and well-being, particularly in respect of mental health issues including anxiety, stress and depression.

The Report has been published on the day that the FCA has taken over the regulation of the UK’s £200 billion consumer credit industry from the Office of Fair Trading. Over 50,000 businesses, including 500 payday loan companies will now be regulated under the FCA’s new rules aimed at ensuring customers are treated fairly and given the information they need to help them make informed choices. Martin Wheatley, the FCA’s Chief Executive acknowledged, “We have a big task ahead; it’s our job to make sure firms put their customers at the heart of their business and don’t just see them as an easy target or a profit line”. Wheatley also indicated the FCA’s approach to consumer credit providers who fail to follow their new rules, “We won’t shy away from taking tough, decisive action to make sure that the people who rely on these products are treated fairly.  There will be some firms that don’t get the message, or won’t play ball, those firms should know that we won’t let them carry on”. In the run up to today, the FCA has been assessing the market to understand where and how the worst financial detriment occurs and will use the findings from the Report to further develop its regulation of payday loan companies and the consumer credit industry as a whole.

The Central African Republic: past and present

Arguably one of the poorest countries in Africa, the Central African Republic (CAR), is no stranger to scenes of extreme poverty, political instability, violence and bloodshed. Despite an abundance of natural resources, including gold, diamonds, uranium, oil and timber, the country is marred by financial, political and social chaos, and, according to Antonio Guterres, the U.N. High Commissioner for Refugees, currently facing  a ‘humanitarian catastrophe of unspeakable proportions’.[1] Since fighting erupted in December 2013, approximately 1,000 people were killed during a single two day period, over 1 million have been displaced from their homes, and, as of mid-January this year, 60% of the population had no available food stocks[2].

Pre-colonial period

Although paid scant scholarly attention and, until recently, largely ignored by the media and international politicians, the CAR has a long and tumultuous history. The landlocked area that now forms the CAR has been inhabited since the Stone Age (roughly 6000 BC)[3], which is well before any widely publicised ancient Egyptian civilisations emerged. Later on in its history, slave raiding was a severe problem in the North-eastern parts of the CAR, particularly during the 1870s, and left the territory with one of Africa’s lowest population densities. Slave-buyers were often noted as being Muslim, but, according to Jacqueline Woodford, author of the most recent academic book on the country in English, non-Muslim Africans were also complicit in the trade.[4]

The French

As the power of the slave traders gradually declined, French colonialism spread. The Berlin Conference of 1884-85 left much of the central, north and west of Africa in French hands. Although some formed alliances with the colonists for economic or political reasons, resistance to colonial rule, despite being largely absent from historical record, did exist. In Berbérati (now the CAR’s third largest city) in 1954, protests emerged when a local administrator refused to arrest a Frenchman, on whose property the bodies of two men, one of whom had been employed by the Frenchman, were found. Meanwhile, over 100 locals who allegedly shouted anti-French slogans and sang anti-French songs were arrested and charged.[5]

The road to autonomy

By this stage, however, all inhabitants of the Federation of French Equatorial Africa (‘AEF’) (including those in what is now known as the CAR), had been granted French citizenship and were permitted to establish local assemblies.[6] Accordingly, in 1949, Barthélemy Boganda, a Catholic and advocate of African emancipation, created the colony’s first political party, the Movement for the Social Evolution of Black Africa. A French constitutional referendum then dissolved the AEF in 1958 and on 1 December 1958 the colony of Ubangi-Shari became a self-governing territory known as the Central African Republic, with Boganda becoming the country’s first prime minister.

Despite the appearance of domestic autonomy, the French still had a significant influence over the country’s financial and military affairs.[7] However, full-independence dawned and, as suggested by Thomas O’Toole, author of arguably the most comprehensive English-language book on the CAR to date, ‘Had anyone been asked in 1959 to put together a “worse-case scenario” for the history of the first thirty years of the CAR, one might have imagined something close to the actual sequence of events that has unfolded’.[8]

Independence, coups and a ‘coronation’

Boganda remained as the country’s prime minister until his death in a mysterious plane crash in March 1959,[9] after which David Dacko, Boganda’s nephew, took the helm. It was under Dacko’s administration that the CAR became fully independent on 13 August 1960. However, Dacko’s tenure came to an abrupt end on 1 January 1966 when Dacko’s cousin, Jean Bédal Bokassa, led a coup and took control of the government. According to the US Congressional Research Service (CRS) report published in January 2014, Bokassa was implicated in massive embezzlement and human rights abuses and his dictatorial rule culminated in his self-coronation as emperor of the CAR in 1976.[10] France reportedly covered much of the $20 million bill for the pseudo-coronation – a sum equal to the entirety of the country’s national gross domestic product at the time.[11] Following riots, a trip to Libya in search of aid and the murder of between 50 to 100 schoolchildren in the country’s capital, Bangui, Bokassa was deposed in a coup backed by French troops in 1979. Bokassa was found guilty of murder and embezzlement in 1987, initially receiving a death sentence which was later commuted to life imprisonment – he was released in 1993 and died in 1996.

Following a period of further political instability, the CAR held its first multi-party elections, in which Ange-Félix Patassé was elected president. Instability increased and violent army mutinies between 1996 and 1997 prompted the deployment of a U.N. peacekeeping operation. In 2002, Patassé allegedly called on a rebel group based in the Democratic Republic of Congo to supress domestic insurgents. This, according to the US CRS, led to large scale abuses against civilians, for which the leader of the rebel group in the Democratic Republic of Congo, Jean-Pierre Bemba, is currently on trial before the International Criminal Court.[12]

‘Séléka’ and ‘anti-balaka’ militias

 

François Bozizé, an army general, eventually rebelled against Patassé and took power in March 2003.[13] Over time, Bozizé became increasingly unpopular and his rule was marked by insurgency in the north and North-east of the country. It is within this context that ‘Séléka’ (translated as ‘Alliance’ from the local Sango language), a loose alliance of untrained and predominately Muslim rebels, was formed in 2012. After capturing a string of towns across the country, Séléka overthrew the government on 24 March 2013, leaving Bozizé apparently fleeing the country in a helicopter with five suitcases and Séléka leader, Michel Djotodia, declaring himself as the country’s first Muslim president.[14]

According to Dodfrey Byaruhanga, Amnesty International’s CAR researcher, Séléka forces attacked, executed and tortured civilians, indiscriminately shelled communities and forcibly conscripted children to their army.[15] The level of unrest prompted Djotdodia to call for Séléka to disband on 13 September 2013, but the violence continued.

Humanitarian crisis

In December 2013, ex- Séléka rebels are reported to have killed nearly 1,000 people in the country’s capital, Bangui, over a single two day period.[16] Brutal reprisal attacks against the country’s Muslim population (comprising approximately 15 per cent of the population[17]) have since been carried out by Christian ‘anti-balaka’ (‘anti-machete’) militias. Although religious tensions are almost certainly not the only cause of the current crisis, ‘inter-communal tensions over access to resources, control over trade and national identity are being expressed along ethno-religious lines’.[18] Former colonizer France has sent over 1,600 troops to help stabilise the situation and there are currently nearly 6,000 peacekeepers from the African Union on the ground.[19] Even the peacekeeping efforts are not straightforward. Chadian forces are among the African troops who comprise the bulk of the peacekeepers in and around Bangui. They have been closely allied with the Séléka and have been accused of joining them in attacks on Christian communities.[20]

Central African leaders forced Djotodia to step down as CAR’s president during a regional summit hosted in Chad on 10 January 2014. On 20 January this year, Catherine Samba-Panza was elected as the country’s new transitional president. Despite the growing presence of peacekeepers and a new president, widespread chaos and violence continue, culminating in the declaration by Antonio Guterres, the U.N. High Commissioner for Refugees on 12 February 2014, that ‘massive ethno-religious cleansing is continuing’.[21] The CAR’s history is littered with inept and corrupt leaders, extreme poverty and atrocious violence – a state of affairs that shows no sign of abating. 

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[1] http://www.unhcr.org/52fbc6e96.html.

[2] https://www.amnesty.org/en/news/central-african-republic-war-crimes-and-crimes-against-humanity-bangui-2013-12-19,  http://www.fas.org/sgp/crs/row/R43377.pdf and U.N. World Food Program, ‘Central African Republic – 9 hunger facts’, 17 January 2014.

[3] Jacqueline Woodfork, Culture and Customs of the Central African Republic (London, 2006), p. 10.

[4] Woodfork, p. 11.

[5] Woodfork, p. 12.

[6] http://www.princeton.edu/~achaney/tmve/wiki100k/docs/History_of_the_Central_African_Republic.html.

[7] Woodfork, p. 15.

[8] Thomas O’Toole, The Central African Republic: The Continent’s Hidden Heart (London, 1986), p. 40.

[9] http://cw.routledge.com/ref/africanhist/central.html.

[10] http://www.fas.org/sgp/crs/row/R43377.pdf.

[11] Woodfork, p. 15.

[12] http://www.fas.org/sgp/crs/row/R43377.pdf and http://www.icc-cpi.int/en_menus/icc/situations%20and%20cases/situations/situation%20icc%200105/related%20cases/icc%200105%200108/Pages/case%20the%20prosecutor%20v%20jean-pierre%20bemba%20gombo.aspx.

[13] http://www.fas.org/sgp/crs/row/R43377.pdf.

[14] http://www.theguardian.com/world/2013/nov/22/central-african-republic-verge-of-genocide.

[15] http://www.amnesty.org/en/news/central-african-republic-violence-security-forces-now-out-control-2013-10-29.

[16] https://www.amnesty.org/en/news/central-african-republic-war-crimes-and-crimes-against-humanity-bangui-2013-12-19.

[17] http://www.fas.org/sgp/crs/row/R43377.pdf.

[18] http://www.fas.org/sgp/crs/row/R43377.pdf.

[19] http://www.fas.org/sgp/crs/row/R43377.pdf.

[20] http://www.theguardian.com/global-development/2014/jan/28/central-african-republic-muslim-christian.

[21] http://www.unhcr.org/52fbc6e96.html.

'The Reckoning'

Amid fresh debates over the future of the banking sector this week, questions concerning the issue of fixed and variable pay for bankers show no sign of abating.

Carney criticises ‘crude’ cap

When questioned by MPs on the Treasury committee about whether he agreed that a ‘crude’ cap limiting bonuses to 100% of fixed salary (or 200% if shareholders approve) was not the best way forward, Mark Carney, Governor of the Bank of England, responded ‘absolutely’. 

Mark Carney’s message was simple and clear, and came as an unwelcome interjection to the Labour party’s opposing stance which developed later in the week.

RBS

Royal Bank of Scotland (RBS), which is predominately state-owned, is, according to press reports, seeking to invoke the EU rule that would allow it to pay bonuses up to double an employee’s salary provided shareholder approval is obtained. Bank insiders expect other major banks to follow suit.[1]  So far, only Barclays has informed its staff that it proposes to make such a request.[2] Without this approval, bonuses are limited to 100% of fixed salary. In the case of RBS, the main shareholder they would be requesting approval from is the UK Treasury, which owns an 81% stake in the bank. RBS is yet to release any formal statement on the matter.

Prime Minister’s Question Time

In response to the expectation that RBS plans to submit a request to its shareholders, Labour called on the government (as the majority shareholder in RBS) to reject any request to raise the bonus cap to double an employee’s fixed salary. Labour leader Ed Miliband focused his opposition on the cost of living crisis, together with the fact that RBS continues to make heavy losses.  At Prime Minister’s Question Time on 15 January 2014, David Cameron made it clear that any such request would be rejected,  stating, ‘if there are any proposals to increase the overall pay—that is, the pay and bonus bill—at RBS, at the investment bank, we will veto them. What a pity that the previous Government never took an approach like that’.[3] 

Banks to face ‘reckoning’

Prime Minister’s Question Time had not given Ed Miliband the ideal platform from which to set out his proposals for significant reforms in the banking sector.  This came on 17 January 2014 in the form of a keynote speech at Senate House in London on banking reform and a ‘One Nation Economy’.

Ed Miliband declared, ‘We need a reckoning with our banking system not for retribution but for reform.’  Labour proposes opening up the market to two new sizeable and competitive banks and introducing a threshold for the market share any one bank can have of personal accounts and small business lending.  Banks which are too big will be given four years to sell their excess branches.[4]   

Simon Walker, of the Institute of Directors, has already claimed that Labour’s plans ‘could be disastrous’, while Vince Cable, the Business Secretary, said ‘arbitrary ceilings’ on banks’ market share were not ‘sensible’.[5]

Perhaps more constructively, an article featuring in the Financial Times suggests that rather than selling off physical branches of banks (which are already in decline), the key to increasing competition in the market will be to relax regulations for start-up banks aiming to operate differently.[6]  

In the aftermath of Ed Miliband’s speech, it appears that that the taxpayer had already lost out as an estimated one billion pounds was wiped off the value of shares in state-backed banks.[7]

Outlook

The timing of Miliband’s speech is no coincidence – it is bonus season in the City, a time when the politics and economics of pay come under sharp scrutiny. In a week that has magnified how the bonus cap rules operate, it appears that the debate surrounding bankers’ remuneration will continue to escalate over the coming weeks, as will the political interest in the future of the banking sector as a whole.

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[1] http://www.ft.com/cms/s/0/e086c720-7d26-11e3-a579-00144feabdc0.html?siteedition=uk#axzz2qlF3FYg5

[2] http://www.ft.com/cms/s/0/e086c720-7d26-11e3-a579-00144feabdc0.html?siteedition=uk#axzz2qlF3FYg5

[3] http://www.publications.parliament.uk/pa/cm201314/cmhansrd/cm140115/debtext/140115-0001.htm#14011555000005

[4] http://www.itv.com/news/2014-01-17/ed-milibands-speech-on-big-five-banks-must-spring-some-surprises/

[5] http://www.telegraph.co.uk/news/politics/ed-miliband/10580906/Ed-Miliband-threat-wipes-billion-off-state-banks.html

[6] http://www.ft.com/cms/s/0/4f96d89e-7f70-11e3-94d2-00144feabdc0.html#axzz2qlF3FYg5

[7] http://www.theweek.co.uk/uk-news/56905/miliband-bank-debacle-has-he-just-thrown-away-election