One the key recommendations within the U.K. Independent Banking Commission’s report of retail-banking ring-fencing in the U.K. focused on encouraging retail-banking competition in the U.K. As one of the conditions of its receipt of public money during the financial crisis, Lloyds Banking Group (LBG) committed to divesting a retail banking business by November 30, 2013. This business, known as “Project Verde,” is composed of 632 branches, approximately 5.5 million customers, around GBP 64 billion in assets (around GBP 16 billion in risk-weighted assets), and GBP 32 billion in liabilities. The cost of the disposal will depend on the nature of … Continue Reading →

The development of payments systems and services in Europe has been subjected to diversions, distractions, and setbacks this summer. As a result of the euro crisis, the European Central Bank’s focus has moved away from oversight and implementation of the Secure European Payments Area (SEPA). Fears that the euro may fragment or totally disintegrate have turned minds to evaluating the potential impact of such an occurrence. SEPA’s objective was to improve the efficiency of cross-border payments and turn the fragmented national markets for euro payments into a single domestic one, enabling customers to make cashless euro payments in the EU … Continue Reading →

The mobile recording technology market has responded to the U.K. Financial Services Authority’s (FSA’s) requirements to introduce mandatory call recording for what the regulations describe as “relevant conversations” by those who provide financial advice and execute financial transactions by mobile phone. The scope of the technology varies. Compliant Phones, for example, has developed second-generation Inline Mobile Recording to work across any network worldwide, overcoming limitations of network-only-based solutions for global customers, while BT and Teleware have announced the immediate availability of a network-based recording service for mobile devices, specifically to address the requirements under the U.K. FSA regulations. Cross-border phone … Continue Reading →

At SunGard’s recent London City Event, a panelist made the controversial comment that “governments implicitly support CCPs.” That assertion will, hopefully, never have to be tested. If it is, the legislative reaction would be to place extreme constraints on the capacity of central counterparty clearinghouses (CCPs) and terminate any aspirations CCPs may hold toward interoperability among CCPs across national borders. A decision to support a CCP out of taxpayers’ money would be a non-starter. Taxpayer support of CCPs would be totally unacceptable to politicians and their national electorates. CCPs’ operations transform systemic risk; they diffuse systemic risk and create systemic … Continue Reading →

Last week, the Basel Committee announced additional capital requirements for “global systemically important banks” (G-SIBs) under Basel III: Capital surcharges will be phased in beginning in 2016 and become fully effective in 2019. G-SIBs will be required to maintain between 1% and 2.5% tier-1 equity (shareholders’ equity and retained earnings) above the 4.5% tier-1 equity requirements for all banks. Five criteria — size, interconnectedness of business, cross-jurisdictional activity, lack of substitutability (a rather ambiguous term meaning that no other banks can stand in its place), and complexity — will be used to form an assessment of systemic importance. That assessment … Continue Reading →

At recent analyst events I have been perplexed by the thinking of some industry colleagues on the issue of “regulating cloud computing services.” Cloud computing requires no specific financial regulatory oversight, but a legal framework for control and responsibility for data and standardization. Many confuse the overseeing of cloud computing services with the outsourcing of important functions, which may require specific financial regulatory oversight. Strict and rigorous conditions are imposed on investment firms that wish to outsource “critical” and “important” functions; most importantly, outsourcing investment services and activities should be considered as capable of constituting a material change of the … Continue Reading →

In the U.K. and Ireland, the reputation of international financial reporting standards (IFRS) for bank loans continues to tarnish. IFRS have been subject to criticism from U.K. Parliamentary committee and institutional investors alike — one institutional fund manager said about IFRS, “reporting the train crash has taken place, but providing no warning that there might be a train crash.” Now, the Central Bank of Ireland wants Irish banks to revert to the former accounting convention of generally accepted accounting principles (GAAP) so that the full extent of bad loans and their impact on banks’ capital base may be disclosed. The … Continue Reading →

U.K. banks have rightly decided not to pursue their appeal against the mis-selling of Payment Protection Insurance (PPI). PPI policies provided a sum of money each month to fully cover — or cover a percentage of — the payment due on secured and unsecured loans in the event of unemployment or sickness. Banks increased their profits by incorporating the cost of a one-off PPI premium into consumer loans. Some borrowers complained when they found themselves paying extra interest, and borrowers complained that they were unaware of having taken out the insurance policy. The U.K. banks’ decision to withdraw the appeal … Continue Reading →

The EU Competition Commission has recently announced that it is investigating alleged anti-competitive practices in the European credit default swaps (CDS) market. The more interesting investigation from the perspective of central clearing and settlement is whether, to quote the EU Competition spokesperson,  “ICE Clear, the leading clearing house for CDS, granted preferential tariffs to banks in order to lock them into the ICE system to the detriment of competition.” Central clearing and settlement systems in Europe have developed utility or for-profit models (this is in contrast to the United States, where models tend to be mutual and not-for-profit). European clearing … Continue Reading →

The U.K. Independent Banking Commission (“the Commission”) has published its Interim Report, which sets out its current and provisional views on possible reform to improve stability and competition in U.K. banking. The Commission seeks responses to its recommendations before it publishes its final report in September 2011. It believes that multifaceted approach — helping banks better absorb losses, making it easier and less costly to sort out banks that get into trouble, and curbing incentives for excessive risk-taking — is necessary to make the banking system safer, and that banks must have greater loss-absorbing capacity and/or simpler structures. In summary, … Continue Reading →