— Geffen report on securities settlement reforms imminent.
— Investors pour cold water on Hunt’s GB ISA plans.
— Car loan redress will have “negligible impact” on most major banks.
Good morning! Welcome to Friday — we made it, everyone.
To help you, dear readers, to the weekend we have plenty of great gear, including a report on the U.K.’s plans for securities settlement.
Elsewhere, Switzerland has been urged to bump up banking protections, we’ve got news about the U.K. pension minister’s comments which have led to confusion around auto-enrollment reform progress, and we’ve got the deets on Bim Afolami’s speech at an open banking report launch.
Oh, and plenty of investors hate the chancellor’s plans to introduce a Great British ISA (shock).
Enjoy!
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GEFFEN SETTLEMENT REPORT AFTER THE BUDGET: Mark your calendars. Charlie Geffen’s highly-anticipated report on securities settlement — and whether the U.K. should try and catch up with the U.S. or wait around for the EU — will be out after the budget.
Brexit dividend? There’s always a Brexit angle. The technical area of securities settlement — or how fast securities are actually traded for cash — has become a Brexit flashpoint after the U.S. announced plans to speed up to T+1, meaning one business day after the trade, by May. The U.K.’s departure from the EU has opened up the chance for political one-upmanship.
Why does this matter? In the EU and the U.K. trading venues mostly settle a trade two days after it takes place, known as “T+2.” Speedier settlement aims to reduce risks in financial markets — such as the possibility the other side of the trade goes bust during that period.
Fast or slow? For Brexiteers, expediting the move to T+1 offers an easy post-Brexit win: the U.K. could follow quickly behind the U.S., rather than waiting around for the EU, and boast that it is reaping the benefits of being outside the bloc. But the financial industry is wary of the U.K. moving ahead of the EU because of the links between the two markets and the risk of disruption to trades.
Coming up: The Treasury at end-2022 tasked Geffen, senior adviser at the consultancy Flint Global, to lead an industry taskforce and come up with a plan — which is now close to publication.
What about EU? A roundtable organised by the European Commission in Jan involved U.K. officials and the message from that was that both sides needed to cooperate. But, in the words of Andrew Douglas — Geffen’s taskforce deputy chair — that “doesn’t necessarily mean alignment.” The U.S. has gone full steam ahead with its shift to T+1, and has told the rest of the world to catch up or be left behind. So, the U.K. will need to decide whether to align with its counterparts across the pond, or over the channel.
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BoE’s Huw Pill holds a speech at the Cardiff University Business School, 2 p.m.
The Office for National Statistics publishes its U.K. trade in goods, year in review report, 2023.
Mark your calendars! Our week ahead calendar landed in your inbox Thursday. Help us to help you, and go online to export and plan your week or suggest your own event.
**A message from Nationwide: Unlike the banks, Nationwide Building Society is owned by its members, not shareholders. That’s anyone who banks, saves or has a mortgage with us. Which means we can always focus on what’s best for them. It’s our fundamental difference and what makes us a good way to bank.**
INVESTORS HATE GB ISA PLANS: A survey conducted by broker AJ Bell has revealed that a majority of its customers are not a fan of Jeremy Hunt’s plan to launch a so-called “Great British ISA.” Out of the 1,800 people surveyed, a whopping 77 percent said they believed it was a bad idea to limit ISAs to U.K. assets, while 55 percent said the chancellor should just increase the tax-free allowance instead.
POLITICO first revealed…earlier in February that Hunt is looking at either adding an extra £5,000 allowance for retail investors who buy shares in small and medium-sized firms on the London Stock Exchange, or creating a whole new GB ISA with a standalone £20,000 for investors.
AJ Bell’s direct-to-consumer managing director, Charlie Musson, said: “Extra rules to limit investment to U.K. assets would complicate a simple product and punish investors for holding a globally diversified portfolio.”
Speaking of ISAs…..MFS U.K. has heard that Treasury advisors met with senior financial services figures yesterday afternoon to discuss ISA reforms for next week’s spring budget. Consumer champion Martin Lewis will be pleased as one of the topics discussed was changes to the Lifetime ISA, according to insiders. This newsletter revealed that the chancellor is poised to cut the LISA penalty rate and could increase the £450,000 property limit in an effort to help first-time buyers. Hunt will rubber stamp any changes throughout the weekend and Monday.
SWITZERLAND SHOULD BUMP UP BANKING PROTECTIONS, FSB SAYS: Switzerland should strengthen its safeguards around “too big to fail” banks after the UBS-Credit Suisse merger, the Financial Stability Board said.
Mind the gap: The country should increase supervisory resources, strengthen early intervention powers and enhance its bank recovery and resolution regime, the FSB said. It also said the country’s deposit insurance system has “some gaps” which authorities may want to address.
Takeover: UBS bought Credit Suisse in March 2023 in a deal brokered by Swiss authorities, as Credit Suisse was on the verge of collapsing. Both banks were “too big to fail,” known as G-SIBs, meaning they combined into a single juggernaut. The enlarged size means that if the bank failed, it “could have severe impact on the Swiss economy and the global financial system,” the FSB said.
Bank runs: The speed of Credit Suisse’s demise — and that of Silicon Valley Bank in the U.S. (also in March 2023) — shows that banks need to monitor social media for negative chat that could prompt a run, according to a report from S&P Ratings. The troubled banks had their own issues, the ratings agency said, but the vast reach of social media can quickly expose weaknesses and speed up deposit outflows. “Deep fakes” could exacerbate the problem, it said.
BASEL COMMITTEE TAKES AIM AT “WINDOW-DRESSING”: The Basel Committee on Banking Supervision is considering a crackdown on “window-dressing” by the world’s biggest banks, it said following a two-day meeting in Madrid.
Regulatory arbitrage: “Window-dressing” — where banks cut down their activities at the end of the year to compress their balance sheet and appear smaller — can allow lenders to reduce or avoid completely specific capital requirements aimed at the biggest banks, or G-SIBs. The standard-setter said the practice “undermines the intended policy objectives of the Committee’s standards and risks disrupting the operations of financial markets.”
New rules: The Basel Committee said it will consult on potential measures to reduce the practice in March, and will publish a paper looking into how the biggest banks have been designated over the last decade.
Green finance: The standard-setter will also put out a paper on banks’ climate stress testing in the coming months.
CAR LOAN MIS-SELLING NO BIGGIE FOR U.K. BANKS: Ratings company Scope Group thinks the FCA’s review of potential mis-selling relating to car finance loans will have a “negligible impact” on most major banks.
So far…Lloyds Banking Group is the only bank to set aside potential redress for customers who took out car loans, after the FCA announced in January that it is investigating the car loans market to see if commission payments to brokers were too high. Lloyds has set aside a whopping £450 million, but analysts at RBC estimated that the bank could be forced to pay as much as £2.5 billion.
Banking blues: RBC thinks Santander will have to pay out £1.1 billion and Barclays £350 million. But neither has yet made a provision for redress. However, Scope analyst Álvaro Dominguez Alcalde reckons that the regulator’s review will have a “negligible impact” on Barclays, HSBC, NatWest and Nationwide Building Society, as the banks have “no or very limited exposure to this segment.” However, he did not rule out “severe outcomes” (i.e. redress) for smaller lenders who sold the loans, adding that the £38.3 billion PPI scandal in the 1990s and noughties has created a “emerging culture of litigation in the U.K.” Watch this space.
CREDIT CARD MISERY: Credit card complaints are at their highest level on record, according to figures released today by the Financial Ombudsman Service.
Not happy numbers: Consumers lodged 5,660 complaints between Oct and Dec 2023, the highest ever level over a three-month period. For credit card complaints, 55 percent were due to perceived unaffordable or irresponsible lending by firms. In the same period last year, there were 3,216 complaints, of which only around 20 percent were about irresponsible lending.
Not just credit cards: The top five most complained about products, in order, are: current accounts, credit cards, motor hire purchase agreements, car/motorcycle insurance, and buildings insurance. All of these saw year-on-year increases in complaint numbers, with 7,804 complaints about current accounts.
Go direct: Three quarters of credit card complaints were brought by professional representatives — like claim manager companies or law firms — compared with one quarter last year. Representatives often take a cut of the payment received by the customer, and the FOS is seeing “poorly evidenced complaints” from the middlemen companies, according to Viv Kelly, the authority’s director for consumer credit. “Uphold rates can be considerably lower than if a consumer brings a complaint directly to our service,” Kelly said.
UH OH: Many in the pensions industry were jumping with joy when the government’s “Pensions (Extension of Automatic Enrolment) Act 2023” was given Royal Assent last September. It gave U.K. ministers the power to reduce the auto-enrolment age, among other things. However, pensions minister Paul Maynard dropped a bombshell at the Pensions and Lifetime Savings Association investment conference in Edinburgh yesterday, telling attendees that although the government wants to stick to the plans, there was no commitment to a timeline on when it would do it — ouch. “We will consult at the right time we judge most viable,” he said. This means it is unlikely to happen this parliament.
DWP hits back: A department official told MFS U.K. that the minister’s comments didn’t mean what everyone thought they meant, but that won’t appease many providers who want the changes asap.
They said: “The success of automatic enrolment has transformed the U.K. pensions landscape. We are committed to expansion in the mid-2020s — by abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled to 18 years old.”
What is it: Currently, auto-enrolment applies to those aged between 22 and 66. The new act, which was pushed by former pensions minister Baroness Ros Altmann, gave the government powers to reduce the minimum age to be automatically enrolled into a workplace pension from 22 to 18, and lower the minimum earnings threshold on which pension contributions are calculated.
Provider push: Since it was introduced in 2012, auto-enrolment has helped millions put more cash into their pension pots. The entire point of the act was to get more younger people saving into pensions, which, in turn, would help more in retirement and boost the economy. Pension providers have been pushing the DWP and Treasury hard for these changes (shock). The CEO of wealth manager True Potential, Dan Harrison, told MFS U.K. that reducing the auto-enrolment age would “give up to 5,530,000 young people an earlier start in saving for their retirement,” Well, there goes that dream.
**Brüssel, London, Paris… und jetzt kommt Playbook nach Berlin! Our expert reporters are bringing their stellar journalism to another hub of European politics. We won’t be hiding out in Mitte – from the Bundestag and key institutions all the way to each of the Bundesländer, Berlin Playbook has got you covered for your daily dose of deutsche Politik. Mit nur einem Klick anmelden.**
OPEN FINANCE POTENTIAL: Yesterday afternoon City Minister Bim Afolami spoke at the Centre for Finance Innovation and Technology, or CFIT, the day it released a report about the potential of Open Finance. Afolami touted the UK’s fintech credentials: “Of course, today reflects a proud tradition of British leadership in FinTech and innovation,” he said. The U.K.’s work “has led to other jurisdictions looking to us for inspiration and guidance when developing their domestic approach.”
Benefits galore: The new report claims a wide range of benefits from data access, such as improved lending to SMEs, and automation freeing up resources to improve support of vulnerable customers. Plus, CFIT claims that Open Finance could add £30.5 billion to UK GDP.
LSEG chief says UK groups need to pay executives more, writes the Financial Times
US SEC to vote on long-awaited climate disclosure rule, according to Reuters.
Thanks to: Kathryn Carlson, Fiona Maxwell, Izabella Kaminksa.
**A message from Nationwide: To help us deliver fairer banking, Nationwide would like to work with policymakers on the issues that impact our customers and the products and services we offer them. Our focus is on helping people manage their everyday finances, own a home and save for their future. Reintroducing the Help to Buy ISA would provide first time buyers a simple supported product offered by numerous high street providers, enabling them to save for a deposit. The scheme successfully helped people by a home at an earlier age – the median age of a buyer using a Help to Buy ISA is 28 compared with 30 in the wider first time buyer market. With almost half of all first time buyers now receiving help with their deposit from friends or family, the Help to Buy ISA provides support for those unable to access the Bank of Mum and Dad. Find out more.**
