UK bankers' body commissions international competitiveness review

Out-Law News | 19 May 2015 | 5:29 pm | 2 min. read

Former Financial Services Authority (FSA) chair Sir Hector Sants will lead an industry-commissioned review of the competitiveness of the UK banking industry, amid growing concern that tougher regulation and a potential referendum on EU membership are affecting business.

The review will aim to produce "progressive and implementable" recommendations to improve UK banking competitiveness, which will be presented to the government in the autumn, according to the British Bankers Association (BBA). It has commissioned Sants' employer, management consultancy Oliver Wyman, to produce the report.

"We want to make sure that the UK continues to benefit from the hundreds and thousands of jobs and tens of billions of taxes that are currently provided by the banking industry in this country," said BBA chief executive Anthony Browne. "It is in no one's interest for the UK's biggest export industry to lose its global competitiveness."

"The banking industry is increasingly concerned about how Britain is becoming an uncompetitive place to do business. Some banks have recently moved operations and jobs out of the UK due to punitive hikes in bank taxes. Other banks have deferred decisions about whether to invest in Britain until after the election … At the same time tough new regulatory measures are making it more difficult for UK banks to compete in global markets," he said.

The review will focus on the "outward-looking competitiveness" of the UK as an international centre for banking relative to other jurisdictions, and will consider the impact of a range of underlying drivers of competitiveness across the full spectrum of UK banking activity. However, given the nature of the current policy debate, its recommendations are likely to be weighted towards the "more sensitive" wholesale portion of the market rather than retail banks.

Sants and his team will look at the impact on UK banks of new regulations at both EU level, such as the new Markets in Financial Instruments Directive (MiFID II) and Capital Requirements Directive (CRD IV), and the UK's own Vickers reforms. They will also examine how the UK's bank levy, and the proposed financial transaction tax (FTT) between banks in certain EU member states, impact on UK competitiveness; as well as the risks to UK banks of a vote to leave the EU in the planned referendum.

It emerged last month that HSBC, the EU's biggest bank by assets, was reviewing whether to move the company's headquarters from London; a move at least partly in response to "the regulatory and structural reforms which have been put in place post-crisis", according to the announcement. From 2019, the UK's biggest banks will be required to formally 'ring-fence' their deposit-taking activities from their riskier investment banking activities, as recommended by Sir John Vickers' Independent Commission on Banking in 2011.

Tougher standards for UK senior bankers, designed to make it easier for them to be held accountable for failings in their area of responsibility, are due to come into force in March 2016. These rules will be backed by a new criminal offence through which senior managers whose reckless misconduct causes their firm to fail could face up to seven years in prison. Tougher rules on bankers' pay and bonuses, including clawback provisions, have also been introduced while the UK's bank levy, an annual tax on banks' profits, has been increased nine times since its introduction in 2010.

Banking reform expert Tony Anderson of Pinsent Masons, the law firm behind, said that it was "no coincidence" that the BBA's announcement followed "a period of sustained economic growth and relative political stability after the re-election of the UK government".

"British banks finally feel that they are in a position to actively question the plethora of financial regulation which sometimes seems aimed at punishing banks rather than simply de-risking them," he said.