Liquidity risk management

Technical advice on liquidity risk management for the European Commission has been published by the Committee of European Banking Supervisors (CEBS).  It takes the form of a report published on 15 August 2007 in response to the EC’s call for advice in March this year on the regulatory frameworks for supervising liquidity risk adopted in the EEA.  The EC is interested in the reasons for different approaches being adopted. The report notes that only a few countries have made major changes to their regulatory frameworks, there is broad agreement on the aims of liquidity supervision and the effect of growth of the EU had led to more tensions in regulatory requirements experience by domestic banks owned by foreign parent banks. CEBS will continue work on a number of issues in the report and this work is due by the end of January 2008.

Electronic fraud – new law?

The House of Lords has recommended the Government introduce legislation to make banks liable for losses incurred as a result of electronic fraud and suggests that the Government consult on a “data security breach notification” law. 

In their Science & Technology Report  they discuss financial fraud such as phishing and personal identity theft.  The report notes that “figures on the scale of the problem are hard to come by. Indeed, the lack of data on identity theft is symptomatic of a lack of agreed definitions or detailed statistics on almost all aspects of Internet security”. 

Chapter 5 considers in detail the lack of security measures in the the banking industry.  It suggests that the lack of a single regulatory regime adds to the problems.

Key facts about BBA LIBOR

The BBA has put together this briefing note for journalists as economists scour the markets for signs of a credit crunch.  Attention is turning to BBA LIBOR as an indicator of what the market is thinking. Changes in the overnight LIBOR rate suggest short term volatility in the markets.  LIBOR was first developed in the 1980s as demand grew for a measure of the rate at which banks would lend money to each other. Because LIBOR rates are calculated daily from the rates at which banks agree to lend each other money, it is a more accurate measure of how global markets are reacting to market conditions. Recently the overnight borrowing rate has been moving significantly. BBA LIBOR is calculated by assembling the interbank borrowing rates from 16 contributor panel banks at 11am, looks at the middle 50 per cent of these rates and uses these to calculate an average, which then becomes that day’s LIBOR rate.

Price controls on SME banking may be lifted

The Competition Commission has made a provisional decision to lift price controls on the four main business banks in England and Wales.   This follows an OFT review “SME Banking – review of the undertakings given by banks following the 2002 Competition Commission report”.  The OFT say it will boost competition to provide essential banking services to small business customers.  The OFT has been investigating changes in the market since 2002, and found there had been sufficient improvement in competition to warrant releasing the transitional undertakings in relation to SME banking given under s88 of the Fair Trading Act 1973, agreed by banks after discussions in 2002.  The OFT’s review has noted concerns that not many customers are switching banks (naively, might this not mean the customers are happy with their bank?), and a lack of price transparency for customers. The banks will also be required to provide the OFT with information on their prices and compliance with other undertakings. The OFT say this will give banks greater freedom to innovate and compete for customers, and will be most beneficial for those prepared to consider switching banks. This sits oddly with the OFT’s recommendation that the banks continue to be subject to behavioural undertakings agreed in 2002.  These include an agreement to ensure that customers are able to switch account quickly and simply. The OFT will continue actively to monitor the market in future, and ensure the banks comply with their undertakings on switching and price transparency. If they find that competition is not working well for SMEs, they will consider further action. 

My colleagues have produced this short bulletin on Law-Now.

The Financial Ombudsman Service

The Financial Ombudsman Service formerly known as FOS would prefer to be known as Financial Ombudsman Service (or just ‘ombudsman service’). 

It has published a short guide to some of the three letter acronyms (yes, known as TLAs) beloved by the financial services sector and at the same time expressed its preference not to be known by its own TLA.  It has to be better than being known as “Foz”.

Whilst on this subject, does anyone share my irritation at the Financial Services Authority being referred to as “FSA” without use of the definite article, as if it were a real human being: as in “Too much regulation hampers banks according to FSA”?

Companies Act 2006 commencement table

The BERR (take a deep breath: that’s the Department for Business Enterprise and Regulatory Reform) have published a commencement table showing the dates different Parts of the Act will come into force.  You do need to check the relevant commencement order to be absolutely sure but it is a useful guide.

Useful to see section 1282, that reverses the House of Lords decision in the case of Leyland Daf, “payment of expenses of winding-up”, is going to come into force on 6 April 2008. 

Dormant bank accounts

There has been so much in the press on this topic, it hardly needs Banklawblogger to chip in, but the Daily (“Give us back our money, you … you … banks!”) Tabloid doesn’t provide you with the link to the Treasury Select Committee Report.  Here it is.  Don’t try to print it out unless you need 180 pages to slam on someone’s desk for effect. 

The report argues against the Government’s proposals for a voluntary approach to the scheme.  It looks at whether consumer interests will be safeguarded and if the Banking Code is the appropriate “regulatory” vehicle.  The report suggests that 15 years of no activity on the account is too long to move the account to dormant status but welcomes the fact that all forms of customer activity will be recognised.  The activity doesn’t have to just come from the customer.  Such non-transaction activity should be defined and evidence must be retained by the financial institutions to prove an account’s dormancy. 

There has been discussion about the scope of the scheme and the report recommends that National Savings & Investments be included and suggests that the Government investigates proposals for the scheme to include other classes of unclaimed asset, including insurance.  suggests a single search facility for reclaims (at present, BBA, BSA and NS&I run separate facilities, though the BBA are working closely with them according to this press release.)

Banklawblogger posted earlier this year on this.  On 11 June, Gordon Brown included the Unclaimed Assets Bill as one of the proposed bills to be introduced in the next parliamentary session.

Guarantee – effect of change to principal contract

If you are relying on a guarantee, there is usually an anxiety in the back of your mind that a change to the terms of the underlying arrangement that gave rise to the need for the guarantee in the first place, might destroy or reduce the effectiveness of the guarantee.  The Court of Appeal have decided in Wittman v Willdav Engineering that where the defendant had guaranteed payment of the price of goods being bought by its subsidiary, arrangements made later by the claimant (who was selling the goods) and the subsidiary with finance companies, did not discharge the principal contract and the guarantee remained effective.

Syndication’s Arranger had no duty to bond purchaser

The Court of Appeal have upheld a decision that the arranger of a syndicated investment did not make implied representations or owe a duty of care to disclose misleading information in an information memorandum where they believed the error to be of no importance.  The IFE Fund had purchased bonds and warrants as part of a provision of syndicated credit facilities in an acquisition;  it later transpired the target’s financial position was not as shown in the audited accounts.  The court upheld the finding that there was no express representation that the bank would review the information  before the claimant acquired the bonds.  There was of course an implied representation of good faith (which was not breached) but there was no duty of care by the bank to the claimant.

The defendant bank had had cause to doubt the reliability of the audited accounts after receiving two reports from investigating accountants but as the claimant could not establish the bank had actual knowledge of information which had caused the two reports to be misleading, the first instance decision was correct that there had been no duty of care.

The case is linked on BAILII, here.

Law-Now has a piece on the first instance case here.