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| SNEAK PEEK |
— Industry criticizes FCA plans to name firms under investigation.
— Lenders “debanking” SMEs en masse, committee finds.
— U.K. fiscal policies don’t match economic situation, claims economist.
Good morning! Wowee, what a hectic day Tuesday was in the world of financial services. I’ve barely recovered from the many committee hearings, conferences and consultations — but we go again regardless.
Today we begin with feedback to the FCA’s proposals to name and shame firms if they are under investigation. It was certainly a bold announcement by the City regulator, and many in the industry are not very fond of the plans (shock). HSBC’s senior economist paints a grim picture of the U.K. economy — just in case we needed reminding.
Elsewhere, HMRC is under pressure again, plus we’ve got the latest on the number of SMEs being “debanked.”
Enjoy!
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| DRIVING THE DAY |
CRACKDOWN: The FCA has long been promising to beef up enforcement action, but on Tuesday it took the nuclear option with plans to name and shame City firms if they are under investigation by the regulator.
Reputations on the line: The FCA said any decision to name a firm under investigation will be taken on a case-by-case basis, with “careful consideration of whether it is in the public interest to do so.” But there are big questions about how the public naming will impact a company’s reputation as well the public perception of the financial services sector — especially if firms are found to be innocent after being called out.
Three-pronged: The FCA says it’s taking these steps for three main reasons: one, more information about what it’s investigating provides “reassurance, educational value, and effectiveness”; two, it gives witnesses and whistleblowers the chance to inform the regulator’s investigation; and, three, it in theory will act as a deterrent to wrongdoing at other firms. The public interest test will apply if certain conditions are met, including these three reasons.
The move has been criticized by industry figures….with the Personal Investment Management & Financial Advice Association’s Head of Regulatory Policy and Compliance, Alexandra Roberts, writing in to say that it could lead to significant “shareholder volatility” for large listed firms, while smaller ones could see “significant outflows” of assets if they are outed by the regulator.
This is fine: Norton Rose Fulbright’s Global Head of Financial Services, Jonathan Herbst, told MFS U.K. that if this policy goes ahead it could create a “no smoke without fire problem” for the industry, as early publicity may unnecessarily damage reputations. According to the regulator’s own stats, about 65 percent of its investigations currently close without action.
Fine print: Under the proposals only companies will be named, as U.K. GDPR rules prohibit processing individual data unless there is a lawful reason for it. The regulator also revealed that it has not undertaken a cost benefit analysis for its new policy, which will rile up plenty of firms.
Fin: The consultation closes on April 16 and MFS U.K. thinks many responses to the proposals are going to be WILD. Watch this space.
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| WHAT’S ON |
The Treasury Committee questions Bim Afolami on support for SMEs, 2:15 p.m.
Submissions to the FCA’s advice guidance boundary review — proposals for closing the advice gap — close.
FCA joint director of enforcement and market oversight, Steve Smart, gives oral evidence to the Home Affairs Committee inquiry on fraud, 10:30 a.m.
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| RETAIL FINANCE |
AFOLAMI IN THE HOT SEAT: This afternoon city minister Bim Afolami gets a grilling from the Treasury Committee on whether he thinks small businesses are getting a fair deal from lenders, amid increasing pushback against a rise in “debanking.”
The latest figures: The Treasury Committee published correspondence from eight banks after requesting figures on 2023 account closures, and the numbers aren’t necessarily a good look. MFS U.K. has put the key figures below based on the data given by the lenders in their letters, with the caveat that the numbers provided were not uniform (some banks gave overall account closures, while some gave business account closures).
Barclays: 525,000 total account closures, of which 15 percent were SMEs.
Handelsbanken: Numbers not disclosed, but 0.7 percent of total customer population had their account closed, of which 53 percent were SME accounts.
HSBC: 26,299 business relationships exited.
Lloyds: 1,125,177 total account closures, of which 0.72 percent were SMEs.
Metro Bank: 21,242 total account closures, of which 24 percent were business accounts.
Natwest: 21,000 business accounts closed, of which 97.3 percent were SMEs.
Santander: 38,129 total account closures, of which 5.62 percent were SMEs.
TSB: 27,605 total account closures, of which 5.23 percent were SMEs.
Summing up: According to the Treasury Committee’s calculations, of approximately 5.3 million business accounts held by SMEs, 141,620 were closed by the banks. Mostly the reason for account shuttering is due to financial crime concerns, and only three banks listed “risk appetite” as a cause for account closure. However, this doesn’t add up, according to Treasury Committee chair Harriett Baldwin.
What she said: “The fact that only three lenders included ‘risk appetite’ in their criteria indicates these discussions may not be systematically recorded
FCA CAMPAIGN HIGHLIGHTS BENEFIT OF SWITCHING BANKS: The FCA’s got a new campaign to encourage consumers to shop around banks for better savings rates. The regulator’s £600k campaign will run across digital audio, radio and social media. The regulator also has a calculator showing how much consumers could earn in a savings account paying a higher rate.
FINANCIAL OMBUDSMAN ADDRESSES BACKLOG: Abby Thomas, CEO of the Financial Ombudsman Service, told a Treasury Committee hearing on Tuesday that she is committed to reducing a backlog of 10,000 cases, after being questioned by chair Harriett Baldwin about why thousands of cases have taken over 18 months to resolve.
Bigger load: But the FOS expects more cases to come its way, as legislation on authorized push payment fraud reimbursements is finalized, and the FCA makes changes to its guidance on motor insurance. So far the Consumer Duty hasn’t changed workload, as it is “aligned” to the way the ombudsman works, Thomas said.
| INSURANCE |
SOLVENCY DUEL: City minister Bim Afomali and his opposite number Tulip Siddiq took turns to win over attendees at the Association of British Insurers (ABI) annual conference in Westminster on Tuesday.
Locked in: After regaling the crowd of insurers and journos with jokes and gushing praise about the government’s Mansion House reforms, Afolami then got serious and confirmed that the U.K.’s flagship Solvency II reforms would be completed “fully” later this year (although it has always been HMT’s plan for Solvency U.K. to be in force by the end of 2024).
Unlocking wealth: U.K. reforms to the inherited EU Solvency II directive have been a long time coming, with headline changes set to free up hundreds of billions of pounds held by insurers to allow them to invest in long-term, greener assets. Afolami cited a recent ABI report which revealed the U.K. faces an investment funding shortfall of over £600 billion by 2030, roughly a £100 billion shortfall a year. The City minister hopes the government’s reforms will help companies fill that gap.
What Bim said: “The point of these reforms is to promote more investment into the communities of this country, and promote more investment into our economy.”
DESPITE AFOLAMI DECLARING SOLVENCY WAS SORTED….a few hours later Siddiq told the ABI conference that a Labour government would “finally deliver Solvency U.K. reforms to unlock capital in the insurance sector.” Hmm. Siddiq said Labour wants the sector to use the extra billions from the reforms to invest in U.K. infrastructure and green industries.
What Tulip said: “We have become a country where [building] things is too difficult, too slow and it’s impossible to get things done. To fully realize the benefits of Solvency reforms a future Labour government will smash down the blockers to investment, and [provide] a comprehensive plan to build a green energy grid that the country needs.”
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| ECONOMY |
ALARM: HSBC’s senior economic advisor, Stephen King, was probed by MPs on the Economic Affairs Committee on Tuesday and dropped some economic truth bombs.
What growth: King said that economic growth, when measured in GDP per capita, is at its worst level — it fell by 0.7 percent last year, and hasn’t grown since the start of 2022 — than it has been in decades. He compared last year’s U.K. growth figures, or lack thereof, to previous decades. For example, he said GDP per capita grew at 13 percent between 1973 and 1983, and 26 percent the decade after.
Houston we have a problem: Any government will struggle, King said: “It’s difficult [for both parties] to explain to the public the scale of the problem that currently exists. It is easier to pretend that economic growth will simply rebound over the next two or three decades.”
| TAX |
TAXMAN IN TROUBLE: Cross-bench MPs on the Public Affairs Committee (PAC) have whacked HM Revenue and Customs after finding that the tax office’s customer service levels are at an “all time low”.
Nose dive: The PAC’s latest report shows that HMRC’s performance has nose dived. The data indicates that In 2022-23, 62.7 percent of callers waited more than 10 minutes to speak to a tax office adviser, up from 46.3 percent the year prior.
Thresholds: The government’s decision to freeze tax thresholds until 2027-28 is dragging millions more people into higher tax brackets because of inflation-fuelled fiscal drag, with the PAC report finding that HMRC is “struggling to cope” as demand soars. HMRC told the PAC inquiry that it did not have the resources to meet rising demand for its phone and post services at expected standards.
| FINANCIAL STABILITY |
MMF POLICY IMPLEMENTATION MIXED: Countries have implemented money market fund (MMF) reforms in uneven ways, the Financial Stability Board said in a review published Tuesday. The international standard-setter called for more progress to be made to improve the resilience of MMFs and avoid central bank intervention, which is what happened in the March 2020 “dash for cash.” The FSB published a menu of policy options for jurisdictions to choose from in Oct 2021, after the 2020 market turmoil exposed vulnerabilities in the market. But some countries have not made sufficient progress, the FSB said, including the U.K. and EU which are still in the process of finalizing reforms.
| WHAT WE’RE READING |
How U.K. regulators are missing a chance to make the best of Brexit, explores the Financial Times
Hunt urges Shein boss to pursue blockbuster London float, writes Sky News
Suez trade crisis— by the numbers: our colleagues investigate.
Thanks to: Fiona Maxwell, Izabella Kaminska, Giulia Poloni
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