Banking StandardsWritten evidence from TheCityUK

1. I write to submit TheCityUK’s response to the Parliamentary Commission’s call for written evidence on the draft Banking Reform Bill.

2. TheCityUK is a national membership organisation representing the UK’s financial and related professional services sector. Our members are drawn from across the banking, insurance, asset management, exchange and other financial and related professional services sectors. Our purpose is to promote and explain the role and value of the sector in society and the economy, and to promote the sector abroad. TheCityUK’s members are committed to:

Restoring public and policymaker confidence in the financial services sector

Fully implementing the regulatory reform programme that is underway

Demonstrating the crucial contribution of financial and related professional services to economic growth, the lives of people in Britain and the UK’s place in the world.

3. Instead of addressing the detailed, banking-focused questions that the Commission has posed we would like to take this opportunity to consider the elements of the Draft Banking Reform Bill in its wider context. In particular, we would urge the Parliamentary Commission to:

Be mindful of the context of on-going reform at the UK, European and international level

Carefully consider the impact proposed reforms will have on economic growth and bank’s customers, including savers, SMEs, corporates and the wider financial services sector

Recognise the importance of sound corporate governance to driving good practice and appropriate culture, including the importance of maintaining the integrity of corporate governance structures

Encourage domestic competition and international competitiveness of UK financial services

Context of on-going reform

4. As you are aware, a number of important initiatives are underway impacting the financial services sector. It is important that the draft Banking Reform Bill is considered in the context of on-going UK, European and international programme of regulatory reform, including its interaction with Dodd-Frank Act and any measures flowing from the proposals of the Liikanen Group.

5. The Parliamentary Commission is well placed to consider this wide-ranging programme of regulatory reform holistically. The Banking Reform Bill introduces a number of significant reforms to the banking sector. These are some of the greatest changes to the UK’s banks in a generation. Getting this right is crucial. Poorly considered regulatory change will lead to higher costs for consumers, blunt the competitiveness of the financial sector and will not correct the underlying systemic issues that the UK’s and other governments are committed to resolving.

6. High standards, including robust and effective regulation, are an asset to the UK’s financial sector. TheCityUK is currently undertaking research considering the impact of various factors on UK competitiveness in financial services and will share this work with the Parliamentary Commission when it is completed.

Impact on customers

7. The UK’s future prosperity depends on driving growth by investing in innovation and creating new jobs, and maintaining improvements in living standards even as our society ages. A strong financial and professional services sector enjoying confidence and trust is key to these goals. Financial intermediation—and in particular the process of maturity transformation, through which short-term deposits are channelled to finance longer-term investment — is essential to the modern economy.

8. The total amount of loans made available by major banks to UK businesses totalled £214.9 billion in 2011, including £74.9 billion lent to SMEs. Besides bank lending to businesses, financial institutions provide a variety of other services, from alternative types of financing to investment management to risk management. For example:

UK companies have raised a total of £307 billion in issues of shares and private equity since 2005, allowing them to invest in creating jobs, training and developing people.

Private equity funds managed in the UK currently back around 3,800 companies, employing around 1.2 million people across the world, of which 515,000 in the UK.

The UK general insurance industry in 2010 paid out £60 million a day in claims including motor, property, accident and health care.

9. It is important that financial regulatory reform is implemented with a view to macroeconomic circumstances and the principle of counter-cyclicality. A focus on proportionate, internationally co-ordinated regulatory policy will help to provide the stable framework the international markets require to operate successfully. It is vital that any financial reform, including the delegated powers in the Draft Banking Reform Bill, is embedded with appropriate accountability mechanisms and that the interaction between different legislative packages is studied carefully.

Corporate Culture & Corporate Governance

10. There have undoubtedly been failures of management control and the sector is committed to learning the lessons of past mistakes. Those firms needing to change must demonstrate the changes that they have made in recent years and how they will continue to embed them in their organisations. It is crucial that firms and individuals adhere to the highest standards at all times, not just because this is right in itself, but also because of the impact a reputation for honesty and fair dealing has on the standing of the sector in overseas markets. Alongside the seriousness of the crisis and of recent failings, it is also important to acknowledge that many organisations, and their thousands of employees, continue to serve their customers in an ethical and conscientious manner.

11. We believe that the Boards of companies are best placed to deliver further change by working with shareholders, regulators and policymakers. To this end, it is important that the Draft Banking Reform Bill does not undermine the integrity of group corporate governance structures. TheCityUK is currently undertaking a review of recent changes to corporate governance practices in the financial sector and looks forward to sharing these with the Commission in due course.

Competition and Competitiveness

12. Regulatory barriers to entry necessarily limit the number of businesses meeting the standards necessary to operate in the financial sector, though it should be recognised that this also has the effect of limiting competition in the sector. Increasing the burden of regulation will increase barriers to entry and potentially restrict competition. It is essential that the right balance is struck so that new firms are able to enter the market and existing firms are able to develop innovative products to meet the needs of business. In particular, TheCityUK is concerned that the UK supervisory authorities should not apply a regime to foreign banks seeking authorisation in the UK that is different or more onerous than that offered in other EU member-states, unless there are clearly stated and transparent prudential or other policy reasons for doing so.

13. We encourage the Commission to be mindful of the international competitiveness of the sector and its position as the nation’s leading net export earner, its role nationally as a major employer, and the fact that the sector has many different aspects to it that extend well beyond banking (insurance, asset management, investment etc.) when conducting its deliberations. We believe that avoiding unintended consequences and determining the impact of any proposals you make will ensure the sustainability of the many benefits which our society can and does obtain from the banking and wider financial services sectors.

31 October 2012

Prepared 2nd January 2013