Bank charges case - next date

The next hearing in the test case on bank charges brought by the Office of Fair Trading against seven banks and one building society will be held on 7 July 2008 and is expected to last three days.  The Court will determine:

• whether any other terms and conditions in the bank’s documents that were not covered by the previous judgment could give rise to charges capable of being penalties at common law; and
• whether the terms imposing charges contained in the representative sample of historic terms and conditions which were disclosed in the course of the litigation can also be assessed for fairness under UTCCR.

Liquidity

There is a rather interesting paper the BIS have just published that explains the Federal Reserve’s thinking about central banks providing liquidity.  It’s worth having a look at for a view of the big picture of what has been going on in the financial markets over the past year.  It’s by Ben S Bernanke who is the Chairman of the Board of Governors of the US Federal Reserve System and he gave the talk on 13 May. 

Retail Distribution Review Interim Report

The FSA hope to encourage consumers to get more confidence in using the retail financial products market.  As part of their project to achieve this, today the FSA have published the Retail Distribution Review Interim Report. 

There is more commentary on my employer’s site. Note this frank declaration of interest; access is free but you might need to register.  At its briefest, the FSA propose a “simpler landscape”:

• Independent advisers to help consumers distinguish between sales and advice.  Is this likely to be acceptable to providers?
• Sellers, who do not give advice.
• Money Guidance - generic advice to help the general population improve their financial awareness.

The FSA will publish a feedback statement in October 2008.  They will report industry responses, outline changes to rules and provide a timetable.

New Banking Codes

The new Business Banking Code and the Banking Code were published at the start of April, together with guidance and a fact sheet giving the key new provisions.

The Codes have been given a bit of “press”.  Radio 4’s Moneybox Live had Eric Leenders, head of the Retail team at the British Bankers’ Association on to explain the changes.  The BBA’s view is the Codes have been received posititively by consumer organisations and the press.  The committment by the banks to contact customers who are getting into financial difficulty is thought particularly helpful.  Anyone want to disagree?

New provisions added to the Codes include:

• A requirement to lend responsibly (added to the fairness commitment in section 2 of the Banking Code and Business Banking Code).
• More stringent guidelines for credit assessments (the Banking Code).
• A requirement that banks provide customers with a summary of important information about unsecured loans and savings accounts before customers purchase a product.  This will apply from 1 October 2008 (the Banking Code).

Banking Code Standards Board: http://www.bankingcode.org.uk/home.htm

Eric Leenders: http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=153&a=8077

Running onto the Rock?

Two items of interest to note in the aftermath of Northern Rock: the House of Commons Treasury Committee report that
analyses the causes and consequences of the run on Northern Rock and the publication by HM Treasury, the Financial Services Authority and the Bank of England of a consultation document outlining proposals “to strengthen the framework for financial stability and depositor protection.”  With the media cliche ringing in my ears, “We must ensure this will never happen again” (if only we really could control events as well as we kid ourselves ourselves we can), I see the report notes that “the directors of Northern Rock were the principal authors of the difficulties that the company has faced since August 2007. The directors pursued a reckless business model that was excessively reliant on wholesale funding. The Financial Services Authority systematically failed in its regulatory duty to ensure that Northern Rock would not pose a systemic risk” and suggests that the Tripartite (HMT, FSA and BoE) was inadequately prepared in advance for the announcement of the Government guarantee on Northern Rock deposits. 

It recommends:

• that a relevant authority be given power to acquire information relating to individual financial institutions and to take action in relation to an institution in specified circumstances;
• a special resolution regime for failing banks to enable smooth administration of such a bank to be combined with arrangements to ensure that insured deposits are safe and accessible;
• the establishment of a Deposit Protection Fund to be funded by participating institutions;
• that a single authority be given the new powers for handling failing banks (are we expecting a lot of them, then?), together with responsibility for the Deposit Protection Fund and proposes the creation of a new post of Deputy Governor of the Bank of England and Head of Financial Stability.

The consultation document follows up the report with legislative proposals to:

• strengthen the financial system with stronger bank risk management and “improved functioning of securitisation markets”;
• reducing the likelihood of banks failing by strengthening the regulatory and supervisory framework;
• reducing the impact of failing banks with “tools to resolve a failing bank in a more orderly manner” = the special resolution regime
• strengthening the Bank of England and improving coordination between authorities

Comments on the proposed framework outlined in the consultation document are asked for by 23 April 2008.  The Government intends to follow up this consultation by introducing legislation into Parliament later in this session.

Implementation of the Payment Services Directive

The Government have issued this consultation document showing how it proposes to implement the PSD.  It explains where the Government has some flexibility. It looks at the type of firms which will be subject to the requirements of the PSD; the conditions for waiving the application of the prudential authorisation requirements; the waiving of some of the conduct of business conditions for low-value payment instruments and electronic money; and the potential changes to payer liability for unauthorised use of payment instruments.

Added on 11 February 2008: Your questions on PSD - EC Questions & Answers

The EC has published a Q&A to which inerested parties are invited to submit questions.  some topics covered:

• the application of the payment institution
• grandfathering
• the debit value date in the case of bank holidays

Statement of principles for banks and business

The BBA issued a summary of its statement of principles for banks and business on its nice new website on 8 January 2008.  So far as I know, there are no changes to the existing statement of principles which sets out how high street banks deal with their business customers who borrow from them.

Dormant Bank and Building Society Accounts Bill

The Dormant Bank and Building Society Accounts Bill received its first reading in the House of Lords on 7 November 2007, at the start of the new session of Parliament.  The context of the Bill is the Treasury’s investigation into unclaimed assets in the banking system.  A dormant bank account is defined as one where there has been no customer-initiated activity for 15 years.  The banking industry is being encouraged to launch a drive to reunite account holders with their lost accounts. If the account holder cannot be found, the bank transfers the money to an FSA-regulated central reclaim fund.  If the rightful owner claims the money at a later stage, it will be paid from that account.  The idea of the Bill is that the rest of the money will be reinvested in the community via the lottery fund.  Dormant account assets will be separate and distinguishable from lottery resources and managed as a distinct funding stream.  If they haven’t already, banks are going to have to think about the processes they need to put in place to deal with this, if the Bill becomes law.

Changes to the clearing process

In November 2007, a change will be made to the cheque clearing process so that customers who accept cheques can be sure that after six working days, funds cannot be reclaimed by the bank.  A reclaim might have been attempted typically if the cheque had turned out to be fraudulent or there were insufficient funds in the account.  The key changes will be recommended for inclusion in the next edition of the Banking Code in March 2008.  APACS has a useful note on this.

EU integration of retail markets

We can expect more law to come out of Europe over the next few years integrating the European retail financial markets. A press release on the 19 September by the European Commission shows that at a hearing on Retail Financial Services, the European Banking Federation repeated its conviction there are benefits to be gained from integration of the European retail financial markets.