Memorandum submitted by the Banking Code
Standards Board
INTRODUCTION
1. The Banking Code Standards Board (BCSB)
was established in October 1999 and is responsible for monitoring
and enforcing compliance with the Banking Code. It also offers
guidance to banks and building societies ("subscribers")
on interpretation of the Code.
2. The Banking Code is followed by subscribers
in their dealings with personal customers in the UK. It sets standards
of good banking practice and aims to allow competition and market
forces to operate, encouraging higher standards of banking practice
for the benefit of customers. The first Code of Banking Practice
came into effect on 16 March 1992 and now, as the Banking Code,
is in its seventh edition.
WHAT THE
CODE SAYS
ABOUT FINANCIAL
INCLUSION
3. Although the Banking Code does not refer
specifically to the issue of financial inclusion, it does contain
a number of provisions regarding Basic Bank Accounts. These accounts
were introduced in 2001 as part of the Universal Banking Services
initiative between government and the financial services industry.
The initiative sought to deal with the identified problem of financial
exclusion where large numbers of individuals for a variety of
reasons (such as poor credit history, lack of financial awareness
and modest financial means) did not have access to bank accounts.
4. Access to branch banking services can
also be a relevant factor in financial inclusion. With the growth
in ATMs (cash machines) and increasing usage of remote banking
by telephone or internet, banks and building societies have closed
substantial numbers of uneconomic branches and branch agencies
in recent years. The Banking Code contains specific requirements,
strengthened in the latest, 2005, edition of the Code, as to the
amount of notice to be given to customers when subscribers decide
to close a branch.
BASIC BANK
ACCOUNTS
5. As at the end of December 2004 there
were 2 million Basic Bank Accounts and by 30 June 2005 this figure
had risen to 2.4 million accounts in addition to which there were
3.4 million accounts having similar features although not technically
Basic Bank Accounts.
6. There are 118 subscribers to the Banking
Code and these include the majority of retail banks, building
societies and credit card companies operating in the UK. Sixteen
of the subscribers offer Basic Bank Accounts.
7. The Glossary to the Banking Code describes
these accounts:
"A basic bank account will normally
have the following features.
— Employers can pay income directly
into the account.
— The Government can pay pensions,
tax credits and benefits directly into the account.
— Cheques and cash can be paid into
the account.
— Bills can be paid by direct debit,
by transferring money to another account or by a payment to a
linked account.
— Cash can be withdrawn at cash
machines.
— There is no overdraft facility.
— The last penny in the account
can be withdrawn."
The Banking Code (quoted in italics) and the
Guidance for Subscribers (in Arial font) make a number of requirements
of subscribers who offer Basic Bank Accounts, with clearer and
more definite obligations having been introduced in the 2005 edition
of the Code:—
"3. Helping you to choose products
and services which meet your needs
3.1 Before you become a customer, we
will:
— give you clear information explaining
the key features of the services and products you tell us you
are interested in;
— assess whether your needs are
suited to a basic bank account (if we offer one) and if they are
we will offer you this product;
— offer you a basic bank account
if you specifically ask and meet the qualifying conditions for
one;
[This provision] requires subscribers who offer
a basic bank account to inform certain customers about the account
and how to open one. These are customers for whom the basic bank
account would appear to be appropriate. Such customers may include
those:
— who express an interest in opening
a money transmission (current) account which does not allow them
to go overdrawn;
— whose main source of income appears
to be state benefit;
— who are content to accept the
limited money transmission functionality of a basic account (eg
no cheque book).
— give you information on a single
product or service, if you have already made up your mind; and
— tell you what information we need
from you to prove your identity (by law, we have to check your
identity).
3.2 We will tell you if we offer products
and services in more than one way (for example, on the internet,
over the phone, in branches and so on) and tell you how to find
out more about them. Where we offer basic bank accounts, we will
tell you if they can be used at post offices."
BRANCH CLOSURES
8. The Banking Code also imposes conditions
concerning branch closures. It says:
"7. Changing your account
7.6 If we plan to close or move your
branch, we will tell you at least eight weeks beforehand, and
12 weeks beforehand if yours is the last bank or building society
branch within a one-mile radius (four miles in rural areas). We
will tell you how we will continue to provide banking services
to you."
WHAT THE
BCSB DOES TO
MONITOR COMPLIANCE
9. The BCSB monitors compliance with the
Code in a number of ways:
Annual Statements of Compliance (ASCs)
Statements of Compliance (comprehensive questionnaires)
are completed by subscribers each year and are signed by the institution's
Chief Executive. The ASC asks specifically whether the Code's
provisions regarding Basic Bank Accounts are being met by the
subscriber.
Monitoring visits
The BCSB monitors general compliance with the
Banking Code. Monitoring visits to subscribers who offer Basic
Bank Accounts include detailed testing of how these accounts are
made available. Such visits include a review of policies, training,
literature and compliance oversight.
Mystery shopping
Since 2002 the BCSB has undertaken annual mystery
shopping exercises into the ease with which information can be
obtained about Basic Bank Accounts and how easily they can be
opened. These exercises have been carried out in part by BCSB
monitoring staff and in part by NOP World mystery shoppers.
Since these reviews have been undertaken, we
have completed more than 1,100 mystery shops and the most recent
report and accompanying press release are enclosed with this evidence.
The 2005 mystery shopping exercise included
434 visits to providers' branches and identified that there have
been real improvements since earlier surveys. We found an increasingly
positive reaction from consumers: 67% of people would be prepared
to recommend the bank that they opened an account with (up from
41% in 2003 and 57% in 2004).
However, there are still areas where we believe
that improvement is needed:
— Whilst it is not a Code requirement
to do so, in every survey that we have undertaken to date we have
recommended that banks and building societies make sure that their
Basic Bank Account literature is readily available in branches.
There has been some improvement, but we found that about 30% of
our assessors had difficulty in getting literature and in some
cases it was not available at all.
— In about 20% of mystery shops, attempts
were made by staff to sell a more complex product than the Basic
Bank Account. Senior management must ensure that if a basic account
is what a customer needs, this is what they will be offered.
— Speed of being able to open an account
is crucial where the payment of benefits is concerned. Unnecessary
delays (in one case up to 7 weeks) are unacceptable and providers
must do more to help applicants, many of whom are not financially
literate or who may not have English as a first language.
— Anti-Money Laundering checks still
create difficulties. Many benefit recipients do not have documents
such as driving licences or passports. Some bank staff need to
be more aware of alternative forms of identification: greater
flexibility is needed at branch level.
— Although we are pleased to report
a generally improved picture, our report also makes it clear that
there is not an even picture across the industry. Some subscribers
are meeting their commitments under the Code well but others need
to focus on ensuring that their staff are aware of the product,
that it is readily available and that applicants requiring extra
help to complete the process receive it.
10. The Post Office offers the Post Office
Card Account (POCA) designed specifically for the receipt of benefits.
The Post Office is not currently a subscriber to the Banking Code,
although negotiations are in progress. Technically the POCA is
provided by Citibank, which is a Code subscriber, but it has much
more limited functionality than a Basic Bank Account, and to date
our mystery shopping has not included this product.
11. We include checks on subscribers' procedures
for ensuring that required notice is given for branch and agency
closures as part of our routine monitoring, and have required
remedial action, including the deferral of the branch closure,
where breaches of the requirements have come to light.
FUTURE MONITORING
OF BASIC
BANK ACCOUNTS
12. The BCSB and the Code sponsors recognise
the provision of Basic Bank Accounts as a key element in tackling
the problem of financial exclusion. We will continue to monitor
compliance with all aspects of the Code and this will include
follow up of issues that have arisen during earlier monitoring.
We issue reminders to Compliance Officers through our periodic
Bulletins where areas of weakness in compliance are identified,
and our monitoring arrangements respond promptly to reflect changes
to the Code or Guidance as they come into effect.
Notes
The Banking Code and the Business Banking Code
were subject to a second independent review by Professor Elaine
Kempson, of Bristol University's Personal Finance Research Centre.
Elaine Kempson's report, together with the response by the sponsoring
trade associations on behalf of subscribers, was published on
12 November, 2004. The 2005 editions of the Codes, reflecting
this review came into effect on 1 March 2005.
The Board of the BCSB contains a majority of individuals
who are independent of the banking industry. The independent non-executive
Directors are:
Gerard Lemos CMG, (Chairman): an Audit Commissioner
and a Civil Service Commissioner, and Deputy Chairman of the British
Council. He is a founding partner of the social policy research
firm Lemos & Crane
Jenny Watson (Deputy Chairman): a director of Global
Partners and Associates. Chair of the Equal Opportunities Commission,
and a member of the Advertising Standards Authority's Advertising
Advisory Committee. She sits on the Council of the Women's Library
at London Metropolitan University, and is a former Chair of Fawcett,
a not-for-profit organisation campaigning for equality between
women and men.
Claire Ighodaro has spent most of her career with
BT. The positions she held there included, Programme Director
of a major joint venture in Germany; Head of Group Quality; and
Finance Director, broadband. She was worldwide President of the
Chartered Institute of Management Accountants and she is the co-author
"Ethical, Social and Environmental Accountability".
Amanda Jordan OBE Chairman of the SMART Company,
a consultancy that specialises in corporate social responsibility,
Chair of One London (the London Enterprise Agency), a trustee
of the Money Advice Trust, and formerly an adviser to the Social
Exclusion Unit in the Cabinet Office and Head of Public Affairs
at NatWest.
Elaine Kempson Professor of Personal Finance and
Social Policy Research and Director of the Personal Finance Research
Centre at Bristol University and previously the Programme Director
for Personal Finance and Principle Research Fellow for the Policy
Studies Institute. She was a member of the Treasury led Policy
Action Team 14 on Access to Financial Services in 1999. In addition
she has been a member of the DTI Taskforce on over-indebtedness
and the DTI Foresight sub-panel on Personal Financial Services
and is now a member of the Government's Financial Inclusion Task
Force.
Alan Whiting was Director of Financial Regulation,
covering banks, building societies and friendly societies, at
HM Treasury. More recently, he was Executive Director, Regulation
& Compliance at the London Metal Exchange.
The British Bankers' Association, the Building
Societies Association and the Association for Payment Clearing
Services (APACS) are the three industry sponsors of the Banking
Code.
January 2006
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