Counting frozen Russian funds

SNEAK PEEK

— Former Tory leader criticizes slow movement of Russian asset seizure.  

— SCOOP: City minister talks up U.K. financial services’ role in digital innovation.

— Banks push back against new government snooping bill.

Happy Wednesday! We’re half way through the working week and oodles has already happened in the happy land of financial services.

Today we have the latest on the various government committee hearings held in the aftermath of the spring budget and on the state of the U.K. economy. Elsewhere, a former Tory leader criticized the government for being too slow to seize Russian assets, and banks have pushed back on new rules which would make them snoop on benefits claimants. 

There’s plenty more, so grab a coffee, or something stronger, and get stuck in!

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DRIVING THE DAY

SLOW MOVEMENT ON RUSSIAN ASSET SEIZURE : MP Iain Duncan Smith believes a “historic resistance” towards sanctions in Britain is causing slow movement by the government on using frozen Russian assets. “Our sanctions regime is by no means perfect, and that’s being kind,” the MP said at an event in Parliament yesterday.

Quick recap: Major economies have frozen billions in state and individual Russian assets since its illegal invasion of Ukraine two years ago. But there’s an impasse on how to use these funds. Foreign Secretary David Cameron stated at Davos in January that “Russia is going to have to pay reparations for its illegal invasion, so why not spend some of the money now, rather than wait till the war is over.” But those words haven’t turned into action.

Chelsea sale: The sale of Chelsea Football Club is a prime example of this. After Russia attacked Ukraine in February 2022, the proceeds from the sale of Chelsea — around £2.5 billion — were intended to be distributed amongst victims of war.

But but but: Aside from the Chelsea figure, no one seems to know exactly how much Russian money is sitting in the British financial sector. Rupert Skillbeck, director of charity Redress, which held the event in parliament, said: “We know the figure for Japan, Belgium, the US, but not Britain.” 

Stuck in the mud: Using the money gained from the Chelsea sale is at an impasse because of disagreements between the Foreign Office and those who will distribute funds. Additional licenses need to be granted by the Office of Financial Sanctions Implementation, and an agreement needs to be reached about how the funds will be used. Unsurprisingly, Roman Abramovich, former owner of Chelsea, seems to have a rather broader definition of “victims of war” than the Foreign Office (he wants some of the funds to go to Russian victims — read our story here).

Not one without the other: IDS told the event that he believes the government won’t move forward on using the funds from the Chelsea sale until there is a plan about what to do with all Russian assets. He called for more to be done, saying the funds from the sale would be a “key resource” and said he is “compelled by the arguments of the Ukrainian government” about using frozen Russian assets to reconstruct the country and for victims of the war.

WHAT’S ON

Office for National Statistics GDP monthly estimate, U.K. (January 2024), online 7 a.m.

House of Commons Treasury Committee oral evidence session with Jeremy Hunt on the 2024 budget, 2 p.m.

Institute of International Finance ‘The March 2023 Banking Turmoil: One-Year Anniversary Analysis and Lessons Learned’ event, from 8 a.m.

Pensions and savings symposium, from 9 a.m.

**A message from Nationwide: Unlike the banks, Nationwide Building Society is owned by its members, not shareholders. That’s anyone who banks, saves or has a mortgage with us. Which means we can always focus on what’s best for them. It’s our fundamental difference and what makes us a good way to bank.**

BANKING

BANKS PUSH BACK AGAINST GOVERNMENT SNOOPING BILL: A controversial data privacy bill would give the Department for Work and Pensions the opportunity to request data on tens of thousands of bank customers if they claim state benefits. And the banks aren’t happy about this.

Unenthusiastic policeman: Banks would have to pass on data about their customers any time DWP requests it under the proposed law. But they don’t want to be seen as the policeman of the benefits system. 

Brexit benefit: It’s part of a new data privacy bill the Tories have come up with which they are selling as a Brexit benefit. The draft law is still making its way through parliament, and banks are hopeful some changes might be made. They’ve got the ear of peers in the House of Lords (some of whom claim benefits in the form of a state pension).

Small fry: Banks think it’s a bad use of their time, given that the money lost to benefit fraud is pennies in comparison to money laundering and fraud. One banking lobbyist told POLITICO: “All the work we’re doing…to focus on serious crime and money laundering risks. That’s where we all want to spend our time and system energy.” Read our full story here.

Speaking of pensioners: Labour is set to accuse the Tories of no longer being the party of pensioners. MFS U.K. understands Labour Shadow Pensions Minister Liz Kendall will tell attendees at the TUC Pensions Conference in London today that the Tories’ tax plans will leave eight million pensioner taxpayers an average of £1,000 a year worse off, and that Labour will be on the side of pensioners if the party enters government. 

TECHNOLOGY

AI THERE: MFS U.K. understands that City minister Bim Afolami will address attendees at Ripple’s Imperial College Summit in London today about the role digital innovation can play in the financial services sector. 

Tech hub: Afolami is expected to say that the City of London can “credibly boast that it is the Silicon Valley of Europe.” This newsletter understands that he will close by stating that “by working together — industry, government, and the regulators — we will make sure the U.K. continues to be at the cutting edge of financial services.” Also, keep an ear out for a mention of the government’s planned Digital Securities Sandbox. 

ECONOMY

PUBLIC PROBLEMS: The U.K.’s public finances are at risk and services could fall into “unknown territory” because of the Treasury’s refusal to undertake detailed departmental spending plans, the boss of the OBR told MPs on the Treasury Committee yesterday. 

Delay: At his spring budget last week, Jeremy Hunt said his Treasury boffins won’t do a spending plan for Britain’s creaking public services until after the next general election. The OBR’s Richard Hughes said this means government departments will be unable to make plans because they have no idea what their budgets will be. 

Old news: Hughes said the Treasury’s decision to kick the can down the road and not outline a multi-year spending plan is “not the way that we’ve done things” previously. He added: “There used to be a process whereby the government would have three-year spending plans reviewed every two years, so you always had more than a year’s worth of forward perspective on the outlook for public spending.”

Uh oh: According to Hughes, delaying a review could add an extra £20-30 billion to public spending budgets post-election, which is over double Hunt’s £8.9 billion of fiscal headroom. Not good.

BAD BUDGETING: In another Treasury Committee hearing, the Resolution Foundation’s Torsten Bell told MPs that not having a spending review was “suboptimal.”  

He said: “If we get an election in autumn, then a chancellor must do a spending review basically within five or six weeks [after that], as you have to give departments their budgets. Otherwise, we are at serious risk of running into the start of the next financial year without giving schools and councils budgets … For people running public services right now, [the government] not doing at least a one-year spending review if we are having an election in autumn is a very bad thing indeed.”

Cuts cuts cuts: The Institute for Fiscal Studies’ Paul Johnson told the committee that savings are going to have to come from somewhere. Luckily, he allayed fears of a George Osborne-style austerity raid by adding that he thinks neither party will look to slash public budgets “by 10 to 15 percent.” Instead, he thinks the next government will fund public services through higher taxes — or the U.K. economy will get lucky with a growth spurt. Don’t hold your breath.

PEER PRESSURE: Meanwhile, City minister Bim Afolami was making not-so-small-talk with peers on the House of Lords Economic Committee. 

Not our problem: Afolami said that it was “not reasonable” to undertake a detailed spending plan now, and then dropped that transparency and costs on public spending was the problem of  whoever wins the next election — which polls suggest will not be his party.  

He said: “It is not reasonable at this juncture to ask this government and parliament to make a full budget for the next spending review period. It will be up to the next chancellor and government on how to apportion that [public spending].”

Fiscal drag: Responding to a question on why personal U.K. taxes are so high, Afolami admitted what we all know already: “The effect of fiscal drag means more people are paying tax now than was the case a couple of years ago.” 

However….In what could possibly be seen as a whack on Liz Truss and her cabal of frenzied tax-cut-loving backbenchers, Afolami said Hunt’s decision to slash National Insurance again shows that the government is cutting the “right taxes to grow the economy” and not just slashing taxes for “ideological reasons.”

FRAUD

BANK PAYMENTS DELAY: The U.K. government published a statutory instrument to put into law a 72-hour delay for banks to check that account holders aren’t being tricked into authorizing fraudulent push payments (confirming its announcement yesterday). Banks have welcomed the extra time to allow them to notify the payer, or the police, that they may be about to give money to a scammer. 

Legalese: The new law will allow payment service providers to delay the execution of an outbound payment transaction by up to four business days from the time the order is received.

But but but: It is expected this will impact “a very small percentage of overall payments,” and is only allowed “where there are reasonable grounds to suspect a payment order from a payer has been placed subsequent to fraud or dishonesty perpetrated by someone else.” Banks or other payment providers are liable for any interest or charges resulting from payment delays.

Pay.UK, an industry body, said: “Our priority is providing tools to help the industry detect and prevent fraud before money leaves a victim’s account. We welcome the Government’s action to combat APP fraud.” A spokesperson also said Pay.UK is piloting a new service for U.K. banks and building societies using “predictive intelligence to analyze money flows to proactively detect fraud and prevent crime before it occurs.”

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NONBANKS

NONBANK TOOLS: The Bank of England’s new lending facility for nonbanks is beginning to take shape, Nick Butt, head of the bank’s future balance sheet division, said in a speech yesterday.

Why do they need it? Successive crises generated by stress in the government bond market means the BoE wants to introduce a new tool to provide liquidity to nonbank financial institutions which do not hold an account at Threadneedle Street. In past episodes, such as the LDI crisis in 2022, the BoE has resorted to asset purchases to stop fire sales of government bonds and restore calm in the markets. However, the liquidity created through asset purchases tends to stick around for longer, making it more complicated to use such a tool in periods of high inflation. 

Details: The BoE’s Butt said the central bank is still working on the details of the new facility, but he did shed some light on some of its features: it can be activated only in times of stress, and eligible companies are currently limited to insurers, pension funds and associated liability driven investment (LDI) funds. “Over time, we will consider how this tool might be broadened in scope and scale to include a broader range of [nonbanks] as counterparties,” Butt said.

MARKETS

TRANSPARENCY UNITY: Associations representing the buy and sell-side have agreed on a way forward for post-trade transparency for corporate and sovereign bonds.

Best of both worlds? The Association for Financial Markets in Europe (AFME) and the Investment Association (IA) said today they spent several months to jointly develop a framework following the FCA’s proposals aimed at improving transparency in bond and derivatives markets. AFME and the IA believe that neither of two models proposed by the FCA represent the “optimal structure” for post-trade transparency, so they have taken elements from each option and merged it into what they think is a better, hybrid model. 

Next steps: The associations hope to engage with the FCA on their proposal, which they say “does not represent a radical departure” from the regulator’s. The debate centres on how best to provide transparency on trades (one of the central aims of the U.K.’s wholesale markets reforms, which overhaul the EU’s MiFID II regime) while at the same time protect investors and liquidity providers from giving too much sensitive information out too quickly about large trades.

WHAT WE’RE READING

Thousands of households left significantly out of pocket due to huge pension complaint delays, writes the Sun.

U.K. mortgage arrears hit seven-year high: in the Financial Times.

Sunak wants to create a football regulator to protect the financial health of smaller clubs, reports Bloomberg.

Thanks to: Carlo Boffa, Fiona Maxwell and Izabella Kaminska.

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