Mark Carney criticises protectionist trend

Bank of England Governor Mark Carney has spoken out against the ‘low road’ of protectionism, saying the trend would cost jobs and growth, according to Bloomberg.

Carney said signs of strain were beginning to show on the world economy as a result of trade barriers.

The Governor said: “We can choose between a low road of protectionism focused on bilateral goods-trade balances and a high road of liberalisation of global trade in services.”

“The low road will cost jobs, growth, and stability. The high road can support a more inclusive and resilient globalization.”

Carney said the impact of US tariffs imposed in June was likely to be small, but a larger increase “would have a substantial impact” including indirect effects on the economy through reduced business confidence and poorer financial conditions.

Carney said he believed interest rates would, in the long run, return to pre-financial crash averages. This means around 5% in the UK, ten times the current level. However “a lot of things have to go right for that to be the case.”

The Bank of England head also said that in the event of a no-deal Brexit, banks would probably face a ‘disorderly Brexit stress test’ in March 2019.

FCA floats basic savings rate plan

The Financial Conduct Authority (FCA) has proposed a minimum interest rate for savings accounts to improve returns for loyal savers, according to BBC News.

The FCA has said savers who stay with the same bank or building society for a long time are sometimes penalised by being given poor rates. Some banks pay only 0.05% on instant access accounts.

A Basic Savings Rate (BSR) would apply to all easy access ISA cash products and savings account, applies once the account had been open for a set period, for example one year.

Christopher Woolard, executive director of strategy and competition at the FCA said: “Providers can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers.”

Citizens Advice estimates that customers lose around £48 a year by now switching accounts.

The FCA has proposed that banks would set their own BSR, which would be featured prominently on their site and materials, allowing consumers to compare rates more easily.

The FCA has attempted to address the problem before, by encouraging customers to shop around and asking banks to share information about how to switch accounts. It has also named and shamed the brands paying the lowest rates, but the problem remains.

Lloyds to cut back office staff, invest in tech

Lloyds Banking Group has announced plans to cut 450 back-office jobs in the latest attempt to cut costs and focus on digital initiatives, according to Reuters.

The group has said it will create 255 new roles at the same time, part of a $3.95bn investment in developing the bank’s technological capabilities. The net job loss will be 195.

Earlier in 2018 Lloyds announced the loss of 930 jobs from the central office and hundreds of cuts and closures of branches. The bank is facing sharp competition from industry disruptors who keep costs low through using low-cost tech and online platforms.

The decision to cut branch numbers has proven controversial with customers and politicians, who say the impact on staff and certain categories of customer is excessive.

A Lloyds spokeswoman said: “Today’s announcement involves making difficult decisions, and we are committed to working through these changes in a careful and sensitive way.”

Address alpha male culture in UK banking, says report

MPs have called for a change in the ‘alpha male culture’ at UK banks in a parliamentary report that cites the gender pay gap and hazy criteria for performance bonuses as key problems, according to the Guardian.

The investigation into women in finance found that an alpha male culture was one of the main reasons women gave for opting not to move into senior management at City firms. The culture was said to be particularly noticeable in negotiations over bonuses, where men are said to secure higher bonuses by making forceful demands.

The committee found that financial firms often feature a ‘pyramid’ structure where women are filtered out at each level of seniority, until the upper levels of management feature very few women at all.

The report comes two months after the deadline for UK companies with more than 250 employees to report on their gender pay gap, which highlighted significant gaps in UK banking. Barclays’ investment division pays men a median of 43.5% more than women, compared to the national average gap of 18.5%.

The Women in Finance report identified a 49% gender pay gap in UK bank bonuses and 38% at building societies. For every £100,000 in bonuses awarded to men, women receive just £56,500. The hourly pay gap in finance is 28%.

Treasury select committee chair Nicky Morgan said: “The benefits of gender diversity are highlighted in the report, including better financial performance, reduced groupthink and more open discussions.

“The next step must be for firms to set out how they will abolish their gender pay gap and support the progression of women. Firms should focus on changing the culture in financial services firms, which remains a deterrent for women, especially the bonus culture.”

The report calls on banks to tackle the gender pay gap through measures such as encouraging more men to take up flexible working, discouraging presenteeism and long hours culture, developing gender pay gap strategies and including partners and subsidiary companies in gender pay gap reporting. Recruitment and promotion policies should also be developed to prevent unconscious bias.

Visa says broken switch caused 1 June payment failures

Visa has cited a broken switch as the root cause of payment processing problems on Friday 1 June that saw failed transactions across Europe, according to the Guardian.

Some 5.2m transactions failed during the IT outage. A hardware switch was supposed to turn on a data centre but did not function as intended. In the UK 2.4m transactions were unable to complete while a further 2.8m were disrupted in Europe.

Visa Europe chief executive Charlotte Hogg wrote to the Treasury Select Committee confirming that the problem began at 2.35pm on 1 June and was not rectified in full until 12.45am on Saturday.

Hogg wrote: “The incident was caused by the failure of a switch in one of Visa’s data centres. We understand what hardware malfunctioned (the switch) and the nature of the malfunction (a very rare, partial failure). We not yet understand precisely why the switch failed at the time it did.”

The data centre was intended to work as a back up in the event that Visa’s main system malfunctioned, but in this case the back up also failed.

Hogg said: “We operate two redundant data centres in the UK, meaning that either one can independently handle 100% of the transactions for Visa in Europe.

“In normal circumstances, the systems are synchronised and either centre can take over from the other immediately … in this instance, a component with a switch in our primary data centre suffered a very rare partial failure which prevented the backup switch from activating.”

Nicky Morgan, chair of the Treasury Select Committee, said the committee was satisfied with the responses from Visa and cited the detriment to customers as evidence of the growing reliance on card payment systems.

Clydesdale and Yorkshire Banks to merge with Virgin Money

Two major banking brands are set to disappear from the High Street following a Virgin Money takeover of Clydesdale and Yorkshire banks, according to the Guardian.

The £1.7bn acquisition is expected to lead to the loss of 1,500 jobs in the sector. Clydesdale and Yorkshire Banking Group (CYBG) will merge with Virgin Money to form the sixth-largest bank in the UK with a total of more than 6m personal and small business customers and a lending book of £70bn.

The merger is led by CYBG but the resulting entity will carry Virgin Money branding, marking the end of the road for two Victorian banking brands. Clydesdale Bank dates back to a first branch in Glasgow in 1838, while Yorkshire Bank was founded in Halifax in 1859. There are currently 70 Clydesdale Bank branches and 97 Yorkshire Bank branches.

Clydesdale Bank is unusual in that it issues its own banknotes, leading some to question whether the currency could be amended to feature Virgin founder Richard Branson’s visage. However it has been confirmed that the notes will continue to feature the traditional Clydesdale imagery.

The enlarged Virgin Money will seek to challenge the ‘Big Five’ UK banks (HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander). The next largest challenger bank, TSB, is half the size that Virgin Money will be following the merger.

Jim Pettigrew, the CYBG chairman, said: “It is clear to us that the combined group can transform the UK banking landscape and offer real benefits to customers and communities throughout the UK.”

FSMB consults on ‘statement of good practice’ following Libor

The FICC Markets Standards Board (FSMB) has published draft guidance on what information traders can share, in the aftermath of the Libor rigging scandal, according to Reuters.

The FSMB said the proposed guidance would set out the kind of information participants in commodities and fixed income markets can exchange in Britain.

In a statement, the board said: “The question of what information may be shared between participants in these markets is complex and recent conduct events have drawn attention to the risks associated with sharing information in an inappropriate manner.”

The Libor scandal saw banks fined billions of dollars as a result of rigging currency markets. The matter drew attention to the conversations between brokers from different bank and the exchange of information on a casual basis, by email, telephone or instant message.

The FSMB’s ‘statement of good practice’ is open for consultation. The aim of the code is to stop traders from going further than making general comment and submitting information that would enable another party to identify a client or provide investment recommendations.

The FSMB was established in a drive to clean up currency markets following the Libor scandal.

Tax havens required to build public company ownership registers

The government has said it will support a legislative amendment which will force British Overseas Territories to create public registers of company ownership, helping to address the global system of hiding places for ‘dirty money’ according to the Guardian.

Labour MP Margaret Hodge and Conservative MP Andrew Mitchell had tabled an amendment to the Sanctions and Anti-Money Laundering Bill currently going through parliament. Foreign Office Minister Alan Duncan confirmed that ministers would not seek to oppose the amendment.

The Speaker of the House of Commons John Bercow rejected a series of last-minute amendments seeking to dilute the disclosure requirements on the grounds that they were tabled too late.

The Hodge/Mitchell amendment will require the 14 overseas territories to introduce a public register of company ownership by the end of 2020, or face having a register imposed by the UK government. The territories include financial centres such as the Cayman Islands and the British Virgin Islands.

The issue of tax havens was raised with the release of the Panama Papers in 2016. Around half of the secretive companies revealed by the papers were said to be based in offshore structures registered in the British Virgin Islands, according to Transparency International.

Margaret Hodge defended the imposition of new rules on the overseas territories, which also saw interventions to abolish the death penalty in 1991 and decriminalise homosexuality in 2000.

Hodge said: “The areas on which we have intervened… are moral issues. I can’t think of another issue which is more moral than trying to intervene to prevent the traffic in cirrupt money and illicit finance across the world.”

Lloyds pre-tax profits rise 23% as bank looks to end of PPI complaints

Lloyds Bank’s pre-tax profits rose 23% in the last year, despite pressure from PPI compensation claims according to the Financial Times.

Pre-tax profits were £1.6bn, up 23% on 2017’s profits of £1.3bn. Last year the bank paid out £450m to address historic PPI claims.

Lloyds recently announced that it would set aside a further £90m for PPI claims. The mis-selling of the Payment Protection Insurance policies is by a long shot the greatest mis-selling scandal in UK banking history.

The bank has paid more than £18bn to settle PPI claims since 2011. Clydesdale and Yorkshire Banking Group is setting aside a similar sum, saying it expects the “level of complaints to remain at an elevated level for a period of time.”

The final deadline for making PPI complaints is 29 August 2019. Lloyds is making plans for its final emergence from the mis-selling scandal.

Chief executive Antonio Horta-Osorio said: “We have again delivered strong financial performance with increased profits and returns, a significantly reduced gap between underlying and statutory profit and a strong increase in capital.”

Lloyds recently announced the latest in a series of cost-cutting measures. So far in 2018 more than 2,000 jobs have been lost at the bank. Last week Lloyds announced the closure of 49 branch closures, with the loss of 1,230 staff.

Australian investigation hears evidence on banking misconduct

An enquiry into alleged misconduct within National Australia Bank has uncovered a number of revelations including impersonation of clients and falsification of forms, according to the Guardian.

National Australia Bank (NAB) and Australia and New Zealand Banking Group (ANZ) have been under the spotlight as evidence was being heard by the royal commission.

NAB top executives complained about having their bonuses reduced after employees under their supervision falsified client documents. One executive said the reduction sent the wrong message to NAB leaders.

A former financial adviser with ANZ was said to have recommended a $1.6m luxury marina apartment scheme to his clients, but siphoned off $100,000 when the scheme failed. ANZ did not compensate his clients.

In early 2017, an internal NAB review found 353 staff had falsely witnessed signing of client documents despite not being present at the meetings in which they were signed. The false witness was to support colleagues who had not completed financial forms properly.

NAB executive Andrew Hagger said falsification of documents was ‘common practice’ in NAB working culture, and staff perceived it to be helping clients by speeding up the process.

The commission also heard that Donna McKenna rejected advice from celebrity adviser Sam Henderson, who stars on a TV show. The advice would have cost or $500,000 in superannuation. McKenna claimed that a member of Henderson’s staff had impersonated her on phone calls in order to gather information about her super fund.