MPs point debanking finger at FCA

SNEAK PEEK

— Debanking happening in spades, MPs find.

— France backs its banks — and the U.K. — on euro-clearing.

— Barclays bets big on the City of London.

Good morning! It’s the second day of the U.K. Financial Services newsletter. I’m sure we’re already the first thing you look forward to in the morning. Yesterday, we were greeted with champagne (at 8 a.m.) after our launch at the London Stock Exchange — here we are! Today, it’s the depressing office coffee machine. Swings and roundabouts …

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DRIVING THE DAY

FARAGE WAS RIGHT! An investigation by MPs today partly blames the Financial Conduct Authority for an “unprecedented rise” in banks shutting customers’ accounts in the last 5-10 years. The regulator encouraged banks to prioritize reputation rather than serving a wide array of customers, according to the report by the All-Party Parliamentary Group on Fair Business Banking, in conjunction with law firm Humphries Kerstetter.

In their own words: “Egged on by their regulator, banks have created a whole industry around reputation management.”

Sounds familiar: Last summer Nigel Farage was “debanked” by NatWest’s Coutts because of concerns about his views. Today’s report finds that was actually an extreme example where a lot of analysis was undertaken before kicking Farage out — usually it’s more of a blunt tool that banks utilize to get rid of clients that don’t fit their image.

Not just Nigel: MPs found data showing that hundreds of thousands of accounts are shuttered each year under the auspices of financial crime: “The case studies provided to us and many more reported in the press expose an awkward truth — that the financial, regulatory and reputational pressures facing banks are prompting more and more firms to decide that many clients, and some whole industry sectors, are simply not worth the candle.”

Awkward squad: Thousands of customers are debanked or having facilities refused every month, including cryptocurrency businesses, jewelers, bookies, politicians, sex workers, and yacht brokers, as they are problematic for banks. Even CryptoUK, a well-known industry trade body, has been refused banking services because of the word “crypto” in its name. A broad-brush, automated approach has been taken for individuals or businesses whose “perceived risk profile [is] outside the norm,” the lawmakers said.

WHAT’s ON

― HSBC publishes its results, 4 a.m.

― U.K. Parliament Treasury Committee holds hearing on economic forecasting, 2:15 p.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.**

DERIVATIVES

A MATCH MADE IN LONDON: Alright, we’re a week on from Valentine’s Day, but love is still in the air: Check out our story today looking at the agreement in Brussels which — surprisingly — will allow the bulk of euro-clearing to stay in London. It seems, four years on from Brexit, that the EU just can’t quit the U.K.

Catch me up: Earlier this month, EU lawmakers and governments finalized their revised derivatives legislation (dubbed EMIR 3.0) which had threatened to drag a potentially substantial number of euro-denominated derivatives trades away from the clearinghouses of London (read: LCH).

Mon dieu: In a surprise turn of events, the deal was brought over the line by France batting for the U.K. by pushing for a deal which kept the European Commission’s proposal for EU banks to hold an “active account” at a bloc-based clearinghouse — but with far fewer trades required to be cleared there than could have been the case.

Hold the champagne: U.K. city types are hesitant to celebrate too much, especially as there’s little by way of final figures. But the consensus is that the number of trades to go through the “active accounts” will be small fry. It might be a bit of a compliance headache for EU lenders, but ultimately they can keep clearing at their beloved LCH.

Bonus: There were big cheers for one lesser-noticed aspect of the deal too: no “delegated acts” — something the EU executive and parliament were pushing for. It means if the institutions want to change fixed thresholds at the active accounts, a whole new proposal must be published and go through the Brussels legislative machine.

Bottom line: There are winners and losers here. MFS U.K. sources sell this as primarily a win for common sense and financial stability. It’s good news for EU banks, London’s clearinghouses, and the perception of the City of London post-Brexit. It’s probably less welcome for Germany, the European Central Bank, and Eurex (part of Deutsche Börse) — all of which stood to gain from more bloc-based euro-clearing.

BREXIT

ROUNDTABLE ROMANCE: Speaking at a packed Mansion House event hosted by Goldman Sachs Tuesday, ex-Chancellor George Osborne and his former opposite number, podcast companion and dancing aficionado, Ed Balls, agreed that Brexit has been a “disaster” — which drew rapturous applause from the audience. 

Special guests: The event was to launch the Goldman Sachs “small business manifesto — unlocking the economic potential of U.K. small businesses.” Conservative minister for small business, Kevin Hollinrake, joined the shadow minister for investment and small business Rushanara Ali, in addressing the audience. Neither outlined any new policies. 

Brexit blues: Osborne claimed that Brexit was “never going to be any different” from how it’s turned out, which was poignant as Goldman Sachs analysts recently declared in a report the U.K. economy has “notably underperformed other advanced economies since the EU referendum in June 2016.”

Labour love-in: Osborne declared that the U.K. will not rejoin the bloc in his lifetime — however long that turns out to be. However, both he and Balls agreed that, if elected, Labour will forge a better relationship with the EU than the current government and make “measurable improvements” to the post-Brexit relationship.

WE CAN’T GO IT ALONE, FCA CHAIR SAYS: The U.K. and EU must “lead by example” — and, most importantly — together, FCA chair Ashley Alder said in a speech yesterday evening. Ties between the U.K. and EU “remain incredibly strong,” despite Brexit, Alder said at the U.K. Mission to the EU in Brussels, in a speech that focused on open markets and international cooperation.

Trust us: The regulator’s new competitiveness and growth objective — granted to it in the recently passed U.K. Financial Services and Markets Bill — will not lead Britain into isolationism or encourage it to build barriers. In a global and interconnected economy, the FCA “knows that it can’t achieve its consumer, market integrity and competition objectives alone,” Alder said.

EQUITIES

POLITICO’S MARKET DEBUT: No, we weren’t IPO-ing. But we did get the opportunity to open Tuesday’s trading session at the London Stock Exchange to celebrate MFS U.K.’s launch, and also to pop the champagne corks at the ungodly hour of 8.10 a.m. Markets ended red, in homage to our branding. So, technically, we couldn’t have planned it better.

Banking on restructuring: The big equity news, however, came from Barclays — first in a series of banks to report earnings this week. The bank said it would be setting aside as much as £900 million for a restructuring program focused on boosting profitability at its high returning consumer and corporate segments. The plans follow a 6 percent fall in pretax profit to £ 6.6 billion for 2023, which was slightly lower than forecast. In total, Barclays said it was eyeing £2 billion-worth of cost-cuts, as well as a £10 billion buyback program for shareholders. Shares ended up nearly 9 percent higher on the day.  

Cool Britannia: Barclays’ strategic reorientation of the bank around its U.K. businesses is a potential coup for the City, which will be pleased about CEO C.S. Venkatakrishnan’s declaration that the bank is committed to deepening and broadening its U.K. ties while engaging with the world from London. Venkat went on to tell investors “we are very bullish on the U.K. as a place in which to do business and from which to do business,” while championing London as a deal-making and listings hub (albeit from his U.S. base). He added the group was working with government and regulatory agencies to “get that equity culture back in the U.K. to what it used to be.”

HSBC’S SVB BET IN FOCUS: It’s nearly a year since HSBC found itself the unexpected acquirer of Silicon Valley Bank’s U.K. subsidiary, and investors will be prying over today’s results for clues on how the ring-fencing exemption granted to them by the government to get the deal done has been playing out for them.

MONETARY POLICY

BYE-BYE FAN CHARTS? The Bank of England looks increasingly likely to present its forecasts in new form after Ben Bernanke is done with his review, Governor Andrew Bailey suggested at the Treasury Select Committee Tuesday. Bailey hinted that there will be more use of alternative scenarios around a central one, “to convey more of the range of possible outcomes.” A shift would reflect the harsh lessons of the last couple of years, which exposed the shortcomings of the bank’s modeling. The BoE has traditionally relied on fan charts to communicate its view of the future, which many economists see as having limited usefulness. Fed-style dot-plots may be the way forward.

RETAIL FINANCE

CONSUMER DUTY COULD BE GOING BETTER: There’s much room for improvement on the Consumer Duty, FCA Executive Director of Consumers & Competition Sheldon Mills told a KPMG event Tuesday. The regulator has observed poor practice in the area of fair value assessments, a key tenet of the new consumer rules, with financial firms relying on poor data to justify their products’ value to retail customers, Mills said. But boards are taking the rules seriously, and 37 percent of advice firms have altered their fee structure since the conduct standards began in July 2023.

BIG BANKS FAILING TO OFFER COMPETITIVE SAVINGS RATES: Banks are still failing to pass on higher interest rates to savers, analysis by Moneyfacts released Tuesday shows. The big banks all offer less than 2 percent on their easy-access accounts.

QUESTION TIME

To mark the launch of MFS U.K. we are answering questions from readers — send yours in here.

Q: How much would it cost to decarbonize the U.K. electricity grid by 2030?

A: MFS U.K. is big enough to admit it doesn’t know the answer to this question, so has called in the experts (our Energy & Climate colleagues). Here’s Editor Russell Hargrave with the 411:

No one knows for sure. Labour has promised to put around £8 billion into GB Energy, its state-owned energy company, to invest in getting to clean power by 2030. Their assumption is that this might leverage three times as much private investment, taking us to more than £30 billion all told by 2029.

But National Grid has talked about attracting £54 billion total investment by 2030. And first you need to solve the problems getting renewable energy onto the electricity grid, where projects currently face years of delay — to the growing frustration of investors.

WHAT WE’RE READING

Hunt weighs pension fund investment options to boost equity markets, Bloomberg finds.

Monzo targets £4 billion valuation in funding round, reports City A.M.

Currys’ largest shareholder warns of U.K. stock market decline in the Telegraph.

How many English synonyms are there for “drunk”? According to the Times, 546 …

Thanks to: Fiona Maxwell, Izabella Kaminska, Russell Hargrave, Abby Wallace, Giulia Poloni.

**A message from Nationwide: To help us deliver fairer banking, Nationwide would like to work with policymakers on the issues that impact our customers and the products and services we offer them. Our focus is on helping people manage their everyday finances, own a home and save for their future. To support first time buyers, we would like to see the Government commission an independent review of the first time buyer market, looking at the supply and demand issues that are preventing people from owning a home. This review should look at issues including the difficulties in building the right number of homes, enabling access to home ownership and the development of future fit mortgage products. Find out more.**