Select Committee on Treasury Fourth Special Report

Appendix 3: Banking Code Standards Board response

The Banking Code Standards Board has reviewed the recommendations contained in the Committee's Report on "Banking the unbanked" insofar as they relate to the content of the Banking Code and its monitoring and enforcement procedures.

Let me confirm at the outset that the BCSB wholeheartedly supports your Committee's objective of reducing the number of individuals without access to a bank account. Basic Bank Accounts have an important role to play in financial inclusion and where they form a part of the product range of a Code subscriber and they are suitable, they should be available without obstruction or any dissuasion on the part of frontline staff. We note with concern the Committee's comment that there is evidence to suggest that people are still experiencing difficulties in opening a basic bank account, albeit reflecting branch decisions and attitude rather than head office policies.

The BCSB has a number of approaches to the monitoring of compliance with the Code. These range from full reviews of subscribers to the Code, themed reviews, to surveys, mystery shopping and intelligence gathered from a range of sources including our own helpline, FOS, consumer bodies and the media. Where breaches are identified we require action plans from subscribers to address the shortcomings and these are monitored by the BCSB for completion. Disciplinary action is taken over the most serious breaches.

Although we are in no way complacent, we are pleased to note that there has been a general improvement in performance by the basic bank account providers over the period that we have been undertaking mystery shopping and we feel that the fact that this has been achieved without the need for naming and shaming individual subscribers is positive. However compliance with the Code in this area remains a key area of our focus and we have further mystery shopping planned for early in 2007. I can assure you that the Code is respected and taken seriously by the senior management of subscribers.

As the Committee is aware, the Codes are reviewed every three years and the latest review commenced on 13 November. Mike Young, who has been appointed as the independent reviewer, has written to stakeholders seeking views on changes required to the Codes and we will be ensuring the Committee's recommendations are brought to his attention. A new edition of the Code is expected to become effective in March 2008 although certain changes, for instance the recommendations of the Payments System Taskforce on cheque clearing times (your recommendation 23), will come into operation before then.

Although the content of the Code and the accompanying Guidance are the responsibility of the sponsoring organisations in tine with the principles of self-regulation, the BCSB has considerable input to and influence over both of these, and has responsibility for enforcement. The independent directors of the BCSB will be making a submission to the review and I comment below on those of the Committee's recommendations that we will be supporting. We do believe however that some of the recommendations are of a commercial or product design nature which would normally fall outside the scope of the Code and it is more appropriate that the providers of the products respond to these.

A number of the Committee's recommendations are, we believe, already covered in the Code. These are:

(Recommendation 9). Banks should have lists of acceptable ID to ensure staff are able to guide applicants.

As noted by the Committee, there is already a requirement in the Code to tell customers what information they need to provide to prove their identity and this will be tested in the proposed mystery shopping (see below). Banks may also in appropriate circumstances make reference to the BBA/BSA publication "Proving Your Identity", covering this.

(Recommendation 14). Verification of identity documents to take place at branch level rather than applicants being required to send documents away to a central point. Additionally there should be a maximum time of 10 days for the account to become operational after the customer has provided appropriate identification.

This has been incorporated into the Guidance and became effective on 30 September.

(Recommendation 16). The Banking Code to be amended to require all banks to display their basic bank account literature in branches.

Guidance which became effective on 31 October 2006 states that "subscribers who provide front of house literature for their current account range should ensure that such literature includes reference to the availability of the subscriber's basic bank accounts....".

(Recommendation 17). The BCSB to investigate the extent and form of dissuasion of financially excluded people from opening basic bank accounts and to take action against those found to be dissuading consumers.

Dissuasion would be in breach of section 3.1 of the Code where them is a requirement to offer a basic bank account if requested and ft meets the need. Monitoring of this will be incorporated into the planned mystery shopping.

In their submission to the Code review, the independent directors of the BCSB will also be supporting the following recommendations:

(Recommendation 13). Code to require that where applicants are declined, an explanation should be given together with what steps need to be taken to allow the application to be accepted.

(Recommendation 15). As basic bank accounts do not offer any credit, banks should not undertake credit reference checks—as opposed to electronic identity checks.

(Recommendation 15). The Banking Code should be amended to ensure that basic bank accounts are not unreasonably denied to those with debt problems, although we note that according to the FSA guide on basic bank accounts, only 2 of the 17 providers are shown as indicating that they will reject applications from those with bad debts.

(Recommendation 24). Banks Should not exercise their right of set-off from basic bank accounts where a repayment plan has been agreed and in all cases banks should leave consumers with sufficient money for day-to-day expenses.

Although already covered by section 14 of the Code we feel the Guidance could be strengthened to cover the need to ensure adequate funds for reasonable living expenses.

The recommendation goes on to say that the ability of the banks to exercise a right of set-off needs to be made clearer to consumers in the literature issued or when accounts are opened. This will be recommended for inclusion in the Code.

As mentioned above, we feel that several of the recommendations fall outside the scope of the Code as they are commercial or product design issues and these should be responded to separately by the industry. These are:

(Recommendation 15). All banks should review their policies where they deny an account to an undischarged bankrupt.

(Recommendation 20). All basic bank accounts should incorporate a £10 'buffer zone'.

(Recommendation 22). T & Cs of basic bank accounts to be amended to provide branch counter access.

The Report also recommends that the BCSB conduct research as a high priority into the experience of consumers operating basic bank accounts. (Recommendation 26). We understand that the Financial Inclusion Taskforce has already commissioned BMRB to undertake such research.

I would now like to turn to Recommendation 7 relating to the Committee's wish to see the banks identified in the publication of the full results of the BCSB's next mystery shopping exercise on the provision of basic bank accounts.

As we explained when we gave evidence to the Committee, our rules do not permit us to disclose the results of our monitoring activity unless disciplinary action results and we do not intend to change these rules. However, in the light of the indications given to the Committee by the Chief Executives of the largest providers and your desire to see publication of the results, the BCSB has written to the Chief Executives of all those firms which provide basic bank accounts advising them of our intention to undertake a further mystery shopping exercise in Q1 of 2007. We have advised them that we will be undertaking an exercise of sufficient scale to allow them to disclose the results and confirmed that we are happy for them to do so. The research will be undertaken on behalf of the BCSB and will be independently conducted. I believe that voluntary disclosure by the individual banks will enable the objectives of the Committee to be met.

Finally, we note the Committee's comments on wider banking issues and you might like to be aware that the BCSB has recently agreed that Credit Unions who offer current accounts may become subscribers to the Banking Code. We are currently in discussions with ABCUL and hope that the first Credit Union will become a subscriber in the coming months.

I said at the outset that the BCSB supports fully the moves to achieve financial inclusion and we would very much welcome an opportunity to meet with you and some of your Committee.

17 January 2007

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