Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum submitted by the British Bankers' Association

  The British Bankers' Association is the main trade body for banks in the UK. Our members include many providers of banking services to personal and small business customers. The vast majority of these banks subscribe to the Banking Code.

  We are grateful for the opportunity to submit written evidence to the Treasury Committee. We understand the Treasury Committee's current inquiry to be focused on banking services for personal and small business customers, building on the Committee's report, Banking and the Consumer, of March 2001. In view of this, the Committee might find it helpful to have our comments on some of the main recommendations of that Report and these are set out below.

  There have been several significant developments since the publication of Banking and the Consumer.

  First, the Report of the Banking Services Consumer Codes Review Group (the "Julius Report"), was published in May 2001 and addressed some of the same issues as the Treasury Committee. Significantly, the Julius Report supported the current self-regulatory approach to retail banking business. The current version of the Code and the compliance framework underpinning it is widely respected and is, as noted in Dr DeAnne Julius's letter to the Chancellor of 30 May 2001, "something of an exemplar".

  In December, the Economic Secretary to the Treasury, Ruth Kelly, announced the Government's response to the Julius Report. The Minister endorsed strongly Dr Julius's support for the Banking Code and the Business Banking Code. She also welcomed the BBA's response to the Julius Report and our commitment to implement most of its recommendations.

  Second, the introduction of the Business Banking Code on 31 March 2002, in line with time-scales announced in April 2001, extended the protections of the Banking Code to small business customers (ie those with a turnover of less than £1,000,000). The Business Banking Code pays particular attention to calls for greater transparency in account charges, financial assessment, security and financial difficulties as they relate to small businesses.

  Third, in January this year, we announced the appointment of Professor Elaine Kempson to carry out the 2002 review of the Banking Code and Business Banking Code. This was consistent with one of the central recommendations of the Julius report; namely, that future reviews of the Banking Code and Business Banking Code should be conducted by an independent person.

  Professor Kempson who is the head of the Personal Finance Research Centre at the University of Bristol is consulting widely with all key stakeholders, including the industry. She will present her findings to the Code sponsors (BBA, the Building Societies Association and the Association for Payment Clearing Services) in the summer. Her report, together with the response of the Code sponsors—who retain authorship of the Codes—will be published in the autumn. It is planned that revised versions of the Banking Code and Business Banking Code will come into force from 1 January 2003.

  Fourth, the publication in March 2002 of the report by the Competition Commission, on the Supply of Banking Services by Clearing Banks to Small and Medium-Sized Enterprises, together with responses from the Government and Office of Fair Trading. At this stage, members of the BBA who are affected by the suggested remedies are considering the business implications of these remedies. The banks will be holding bilateral discussions with the OFT and until such time as these discussions bring clarity to the way forward, the BBA will not adopt an industry position.

  There have also been a variety of individual initiatives by banks which demonstrate that competition and innovation continue in the banking market. We would expect banks to refer to these initiatives in their own evidence to the Committee.

  BBA comments on the Treasury Committee's recommendations in Banking and the Consumer[4]

  (a)  We believe that very easy transfer of current accounts between banks is essential to ensuring increased competition in personal banking services. We believe that the major retail banks' efforts to achieving this aim in the twelve months since Cruickshank's recommendation on this point have been disappointingly slow. They must do very much better in the next twelve months. Once the computerised system has been devised and tested, we expect banks to commit themselves to a shorter deadline than ten working days within which to provide account details to the new bank. The time limit should be specified in the Banking Code. Furthermore, there should be penalties (or liability to pay compensation, or both) in the event of non-compliance. We look forward to Dr DeAnne Julius's report, which the Minister said would be available by the end of April 2001 (paragraph 12).

  BBA members are committed to making it easy for customers to open and close current accounts. Successive studies have demonstrated that the process of changing their current account supplier is much easier than is sometimes perceived. A mystery shopping exercise by NOP on behalf of the Banking Code Standards Board (published on 24 July 2001) reinforced the assessment of the Cruickshank report that the "hassle" of changing accounts is much more perceived than real.

  The Julius Report recommended that the time limit for the provision of account information from the old bank to the new bank should be reduced from 10 working days to five, from the end of 2002. In fact, we implemented this a year ahead of schedule on 31 December 2001, and it is reflected in the Banking Code Guidance for Subscribers and in the Business Banking Code. Compliance with the new standard is being monitored by the Banking Code Standards Board.

  The Julius Report also recommended the industry should adopt a "five week finish" for the end to end process of closing a current account and opening a new account with another provider. In our response to the Julius Report, we set out the service standards and deadlines we will put in place to ensure the banks complete on time the stages of the process within their control. In most cases this would ensure the process was completed within five weeks, if that was what the customer wanted. However, because some steps in the process are outside the control of the banks and require co-operation from, for example, direct debit originators and the customer's employer, it would not be possible to guarantee that it will always be concluded within five weeks. A commitment to the goal of a five week finish is contained in the Business Banking Code.

  (b)  We agree that the revised Banking Code must be implemented fully and fairly by all banks. If this does not happen we believe that the case for further statutory regulation will need to be considered (paragraph 14).

  The revised Banking Code came into force on 1 January 2001. The Julius Report recommended that the Banking Code should have universal coverage. We support this recommendation. We are very close to having universal coverage already: 120 banks and building societies currently subscribe to the Banking Code and 39 subscribe to the Business Banking Code. At least one of the notable non-subscribers, National Savings and Investments, has announced its intention to sign up to the Banking Code very soon. We welcome this. However, in our response to the Julius Report we pointed out that, as voluntary codes, the industry cannot force firms to subscribe. We also suggested the Treasury and the FSA could be doing more to encourage firms to subscribe to the relevant Codes.

  (c)  When banks pay lower rates of interest on older accounts, they hope that their customers will not notice. We regard this practice as unacceptable. The Banking Code Standards Board should report on the elimination of such bad practices and enforce the Code's provisions about superseded accounts rigorously (paragraph 17).

  The Banking Code and Business Banking Code contain provisions aimed at ensuring customers in superseded accounts get a fair deal. In the past 18 months the Banking Code Standards Board has targeted this area in its monitoring of Banking Code compliance and has pursued a number of firms it considers to have fallen short of the prescribed standards. We acknowledge that there is no room for complacency in this area and we would expect it to be considered in some depth by Professor Kempson as part of her current review of the Banking Code and Business Banking Code.

  (d)  We believe that banks and building societies providing banking services should include in their annual reports information on the number and distribution of their retail outlets, both via automatic teller machines and over the counter (paragraph 21).

  Many banks already publish details of their outlets.

  A Cash Machine Locator, showing ATMs nearest to any particular point in the UK, is available on the Link Interchange Network website or via the BBA's website .

  In addition to the developments mentioned in the Committee's report, four banks have initiated "Shared Banking Services", a pilot which launched on 2 January 2002, running for 12 months until 31 December 2002, that allows personal and small business customers in 10 locations across England and Wales to undertake basic banking services through another participating bank's branch. The branches are all in locations where there is only a single bank branch and no other within approximately five miles.

  (e)  We agree that there may be a demand for bank accounts without borrowing facilities. We therefore welcome the development by the banks of basic banking accounts and the arrangements to make them available at post offices as well as bank branches. We urge banks to market these accounts more actively than they are at the moment. We believe that the draft Memorandum of Understanding between the Post Office and the banks participating in the "Universal Banking Service" should be published. We believe that there should be scope for transition from basic bank accounts to accounts with borrowing facilities and that these follow—on accounts should also continue to be available at post offices (paragraph 24).

  With all new bank and building society products there is a time delay between introduction and wide spread recognition. Whilst some of our members have had their version of a basic bank account on offer for some time the majority have launched them as part of the run up to the introduction of Universal Banking Services. We would acknowledge that there will be a continued need to promote awareness of these products among customer-facing staff and among customers and the industry is working hard towards this end. We believe that the introduction of Universal Banking Services in April 2003 will have a significant impact on this awareness.

  The transition across financial products from less to more sophisticated is as important for the financial services sector as it is for customers and ultimately UK plc. The question of whether other accounts should also be made available at post office counters is a matter for the individual banks and building societies concerned. Some already make a range of facilities available in this way; others have decided that they do not wish to follow this route.

  (f)  While we accept the need to guard against money laundering and fraud we also believe it is essential that banks do not debar people from access to basic financial services because they do not possess the usual identity documents (paragraph 27).

  The banking industry acknowledges the Committee's concern. Our members are seized of the need to be as flexible as possible—within the constraints of the relevant legislation—about the types of identity documents which are acceptable as proof of identity and address. This is reflected in the guidance for subscribers to the Banking Code and in the 2001 edition of the Joint Money Laundering Steering Group's Guidance Notes. We would welcome government and regulatory recognition that tightening identity and verification requirements works against making access to bank accounts easier for those who do not possess the usual documents. In our view, a pragmatic balance needs to be found.

  (g)  We welcome the abolition of charges for cash withdrawals from most machines, and recognise that this was largely the result of public pressure. We believe that charges should not be reintroduced (paragraph 34).

  Among the changes to the Banking Code introduced in January 2001 were requirements for subscribers to inform customers, by onscreen message, of any cash machine charges they will incur when they withdraw cash. This ensures full transparency for the customer and enables them to abort the transaction if they are not prepared to pay the charges. The question whether or not to charge for the provision of services is a commercial matter for individual providers. We do not think it appropriate for the Code to interfere with the pricing decisions of our members.

  (h)  Banks appear to be reluctant to invest in modern technology to speed up cheque clearing. Even though the use of other methods of payment is growing, we believe that cheques are likely to remain an important part of the financial system and customers' convenience should be given a higher priority (paragraph 36).

  The decline in the use of cheques continues. Whilst overall payment numbers increase, the number of payments by cheque decreases in absolute, not just relative terms. The latest figures, to be published by APACS on 16 May, show that plastic card payments (debit cards, credit cards and ATM withdrawals) now account for over 51 per cent of non-cash payments. In 2001 only one non-cash payment in five was made by cheque and by 2011 APACS forecast that the proportion will have fallen to one in 12. Also in 2001, customer preference for the convenience of payment by debit card (just 13 years after its introduction) resulted in such payments exceeding the total number of cheque payments made by both personal and business customers.

  (i)  We are persuaded that credit card networks need to be regulated along the lines suggested by the Government (paragraph 39).


  (j)  The OFT will need access to both bank charges and their internal cost details if it is to ensure that the market for banking services is operating competitively. In addition, consumers need accurate, comparable price information and we look forward to being able to assess the extent to which the Government's CAT standard proposals and the FSA's comparative tables achieve this (paragraph 45).

  The Government announced in August 2001 that it intended to proceed with its plans to give the OFT powers to regulate participants in payment systems.

13 May 2002

4   HC 138 (Session 2000-01). Back

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