bbaThe voice of banking

Annual report 2013

- our work in 2013The BBA is the UK’s leading association for the banking and financial services sector, representing the interests of more than 250 member organisations with a worldwide presence in 180 countries

BBA at a glance

Our member banks make up

the world’s largest international

banking cluster, operating 150

million accounts for UK customers and

contributing over £50 billion annually to UK

economic growth.

We represent our members to

policymakers, regulators, the media and all

key stakeholders across the UK, Europe

and beyond, working together to promote a

legislative and regulatory system that helps

customers, promotes growth and raises

standards in the industry.

HELPING CUSTOMERSThe BBA worked with the Government,

regulators, consumer bodies, charities

and members to improve services for

consumers and businesses and increase

competition in the banking sector for the

benefit of all customers:

Set up a BBA Consumer Panel of consumer

advocates, leading charities and senior

bankers to identify improvements in services

for customers

Introduced a faster electronic service for

switching cash ISAs and supported the new

Payments Council procedure to streamline

switching of current accounts

Recommended measures to encourage the

growth of ‘challenger banks’ by reducing or

removing barriers to entry

Helped the Department for Work and

Pensions identify suitable bank accounts for

recipients of the new Universal Credit

Co-operated in the creation of an online

utility to ensure that businesses can more

easily meet new regulatory obligations when

hedging against fluctuations in exchange

rates and commodity prices.

PROMOTING GROWTHThe BBA and its members, in partnership

with the Government, Bank of England

and leading business organisations, made

a significant contribution to the success

of small and medium-sized businesses in

helping revive the UK economy:

Improved access to finance by supporting

the extension of the Funding for Lending

Scheme which has boosted new lending to

SMEs

Published details on the Better Business

Finance website of banks participating in the

Scheme, the offers they make and the types

of finance offered

Supported the launch of the British

Business Bank to consolidate, simplify

and centralise the numerous government

support schemes for businesses

Encouraged SMEs to apply for finance with

a campaign pointing out that they are a lot

more likely to get the funds they need than

they think

Worked with leading business organisations

in a campaign against the proposed

Financial Transaction Tax (described as a

‘tax on growth’) advocated by some EU

member states.

RAISING STANDARDSThe BBA helped shape the many new

measures in 2013 to enhance banking

stability following the financial crisis

and to raise professional standards of

behaviour in banking:

Made major submissions to the

Parliamentary Commission on Banking

Standards, particularly on raising

professional standards

Worked with the Government on the

legislation to implement banking reforms

while avoiding unintended consequences

that could damage growth

Supported Sir Richard Lambert’s review of

the scope to set up an independent body to

set professional standards

Worked with the Treasury and European

bodies to ensure that new legislation and

regulation is technically robust but does not

deprive businesses of bank services they

expect

Supported the UK Government in its efforts

to ensure that non-Eurozone countries are

not disadvantaged by the Banking Union

Urged G20 leaders to tackle the threat of

dangerous fragmentation in global regulation

created by the divergence in regulatory

approaches around the world.

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BBA membership

BBA membershipThe new membership structure and approach is designed to better serve and represent members of all types and size

In 2013 the BBA overhauled

its membership structure

and approach to relationship

management to enhance the services given to

the different groups of banks which comprise

its membership.

Representing more than £7 trillion in UK-

based banking assets, the BBA’s membership

is the most diverse banking community in the

world, requiring detailed and comprehensive

support on the distinctive issues facing different

groups. Consequently, membership was

divided into six segments to represent the main

categories of bank, each with a practitioner-led

advisory board to ensure that the BBA meets

its needs.

THE SEGMENTS ARE:1. Large retail banks – made up of those

banks with the largest number of retail

customers

2. Small retail banks – comprised of nearly 20

regionalised and highly specialised banks that

often have strong engagement with their local

communities

3. Challenger banks – new market entrants

and those banks implementing new retail

banking models

4. Private banks – this includes their wealth

management divisions

5. International wholesale banks –

MORE REPRESENTATIVEAn example of the benefits of the

new membership segmentation in

2013 was a greater focus in BBA

work on private banking and wealth

management. The advisory board

for this segment set three priorities:

promoting the sector; protecting

it from inappropriate regulation;

and working with the sector’s

representative bodies (such as the

Wealth Management Association) to

co-ordinate activity and ensure that

the sector has a voice.

specifically those with major UK-based

operations

6. Foreign banks – the largest membership

segment numerically, comprised of the

branches, subsidiaries and representative

offices of leading international banking groups

whose presence in the UK is typically less than

1,000 staff

When the BBA is interacting with

government policymakers, regulators and

other stakeholders, this segmentation allows

better definition of its work in order to align it

with these different interests. And even when

dealing with issues that affect every bank such

as financial crime, it is now easier to identify

Representing more than £7 trillion in UK-based banking assets, the BBA’s membership is the most diverse banking community in the world

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with the differing needs of the six segments. It

is also easier to pool expertise in, for example,

smaller retail banks or custody banks for their

benefit.

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PwC estimates the total tax contribution of the whole financial services industry to be £65bn in the year to March 2013, accounting for 11.7% of government tax receipts

Sir Nigel WicksBBA CHAIRMAN

Chairman’s Foreword

in the Government’s exercise mapping powers

between the UK and EU – the balance of

competences review. The BBA responded to

the Treasury consultation on financial services,

saying that the single market, access to it and

the ability to shape it was very important to the

UK banking industry – especially in international

wholesale banking.

One concern on the international front is the

danger of fragmentation in the regulation of

the banking industry. It has been pointed out

that one cause is often lack of trust between

regulators and supervisors in different markets,

which prompts them to go their own way.

This poses a real risk to the financial services

industry, especially in international capital

markets where fragmentation could slow global

economic growth. In that context, the outcome

of the EU/US negotiations on a Transatlantic

Trade and Investment Partnership will be very

important: more mutual recognition and co-

operation is essential.

Overall, I judge that the BBA has made good

progress in 2013. We transferred the operation

of LIBOR to Intercontinental Exchange (ICE),

though the Association still faces a number of

lawsuits in the USA which are presently stayed,

but which we will be vigorously defending

should they proceed (details of these can

be found in the Notes to the Accounts). We

have made progress with the finances of the

organisation by changing and stabilising the

membership fee basis. The Board and Council

have reviewed the Association’s rules and the

proposed revised version will be put to the

Annual General Meeting for approval. And

under Anthony Browne’s stewardship, the BBA

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CALL FOR EVIDENCE:

2013.

is increasingly regarded as a legitimate forum for in-depth discussions of

the issues facing modern banking.

I believe that we provide a good service to our members and

are pursuing objectives that promote their interests. But we

can, and should, do more, reaching out to our members.

Finally, I would like to acknowledge the role of the

executive team and staff in their contribution

to the BBA’s achievements in these

challenging times, and thank them on

behalf of BBA members for all

their work in 2013.

With the benefit of hindsight, 2013 is likely to be viewed as a turning point for the banking industry

Chairman’s Foreword

A year of progress for the BBA

With the benefit of hindsight, 2013

is likely to be viewed as a turning

point for the banking industry. In

the UK, the passage of the Financial Services

(Banking Reform) Act implemented key

recommendations of the Independent Banking

Commission (IBC) and the Parliamentary

Commission on Banking Standards (PCBS).

In Europe, an intensive effort made it possible

to reach political agreement just before the

2014 elections for the European Parliament

on key pieces of legislation, the culmination of

five years of debate on measures that will help

shape the European banking and securities

markets for years to come. There is now a

lengthy list of secondary legislation and detailed

rules to be drafted, but it is not too much to

hope that we have reached the beginning of

the end of the process policymakers hope will

embed increased financial stability and higher

standards in banking.

MUCH STILL TO DOMuch is still to be done, of course. The

image of the industry in the UK presents a

real challenge for the BBA after the litany of

mistakes, misbehaviours and failures of the

past ten years. The legacy of all that will be with

us into the future, but I am discerning among

senior politicians, regulators and supervisors

recognition that the BBA and senior bankers

are fully committed to raising standards and

helping bank customers.

Following the PCBS recommendations on

looking into professional standards for bankers,

senior bank chairmen set up the review headed

by Sir Richard Lambert to examine how this

could be implemented. We have yet to see

the final conclusions, but there is an immense

willingness and determination to see trust in the

industry restored as banks focus on providing

good service to customers.

Banking in Britain continues to evolve, and

several new challenger banks are preparing for

stockmarket listings over the next few years.

The BBA welcomes greater competition in the

industry, and I believe that is also accepted by

the bigger banks. If investors are prepared to

back these new banks, it is because they see

the prospect of a successful industry. That is a

hopeful sign for the industry for the future.

On the reforms now being implemented, the

devil is in the detail and it is not always easy to

resolve the issues that arise. Ring-fencing retail

banking, for example, could make it harder for

small firms to hedge their risks. These problems

are soluble, however, provided we seek ways

to carry out Parliament’s intentions while still

allowing banks to provide the services that

customers expect.

There were some clear gains for customers

in 2013 – for example, in the systems launched

to make switching current accounts and

ISA providers significantly faster and easier.

Finance for small businesses is improving as

the economy picks up, though it has still not

fully recovered. Big companies can always

raise money, but SMEs rely on banks for their

funding and meeting that need remains top of

the BBA agenda.

The banking industry has also been involved

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Chairman’s forewordNew legislation continued to pour out of Westminster and Brussels in 2013, but the major measures in response to the financial crisis are now in place

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Anthony BrowneBBA CHIEF EXECUTIVE

Richard’s new standards body should be up

and running by early 2015.

Of all these three goals I would contend that

helping customers is the most important of all.

Many senior bankers admit that at times they

forgot who the most important people were

to their business. That explains why they have

now pledged so publicly to put the customer at

the heart of everything they do.

The change is already striking. The days

when frontline staff were rewarded for simply

selling as many financial products as possible

are gone. Now sales teams receive incentives

closely aligned to customer satisfaction. The

BBA had a crucial role in launching a new

current account switching service to take all

the hassle out of moving to a different bank.

We also set up a consumer panel to help

bring banks and consumer advocates closer

together.

Plenty has been done, but plenty remains

to be done. Challenges and opportunities lie

ahead.

Trust and confidence in our industry may

have been lost quickly, but it will take time

and patience for this to be rebuilt. There are

already those who seem unwilling to recognise

the enormous change there has been not just

on regulation, but also on capital levels and

CALL FOR EVIDENCE

boardroom pay.

Similarly, not everyone outside of our

industry grasps how competitive it feels on

the inside. I’m not just referring to the many

challenger banks grabbing market share from

the established names by offering customers

innovative products and services. Around the

world telecoms giants and the big brands of the

internet are already starting to offer their own

banking services.

Perhaps most exciting of all is the burgeoning

revolution in the way we spend, move and

manage our money. Millions are already

spellbound by the magic of mobile banking,

which lets you check your balance on the bus to

work or take out a loan to buy a new car while

washing your old banger. Welcome to the age of

payment by text message, processing a cheque

using your phone and discussing a mortgage via

Skype. All those innovations are either here now

or on the way.

The year 2013 was a year of great change for

our industry – but there is much more to come.

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Green shoots for Britain and our banks

Back in February last year the Chancellor announced that 2013 would be

the year when our industry would be “reset”. We saw the creation of the

two new regulators, the Prudential Regulation Authority and the Financial

Conduct Authority. That summer the Parliamentary Commission on Banking Standards

- the most in depth investigation into banks for a generation – published its final report

containing 100 recommendations. There was also new leadership at the Bank of

England. Mark Carney became the first Governor from overseas in the Bank’s history.

Meanwhile, policymakers in Brussels responded to the events of the last decade with

legislation to make banks safer, more stable and more keenly focused on growth. There

is no space here to chew over the intricacies of CRDIV, RRD or MIFID II, but together

these sweeping reforms made lasting progress in recapitalising our banks and ending

the “too big to fail” conundrum.

However, 2013 was about much more for our banks than resetting the regulatory

framework in which they operate. It was also a year of real headway in which the

grim climate that has encircled our industry for too long began to change.

There are good reasons for this glasnost and I’m proud to say the BBA

has been playing its part by focusing relentlessly on three goals:

promoting growth, raising standards and helping customers.

RESTORING TRUST AND CONFIDENCE

The return of growth has been pivotal. GDP

is now expanding at the fastest rate for

seven years. Our industry’s fortunes

are intertwined with those of the

British economy – and that

is not simply because financial services have

become our largest export industry.

Banks are underpinning this recovery by

lending to businesses of all sizes. Gross

lending to many small and medium-sized

enterprises is growing at double-digit rates.

Many firms remain very cautious about taking

on finance even though around seven out of

10 applications for loans and overdrafts are

approved. That’s why we helped create an

independent appeals process – overseen by

Professor Russel Griggs – which obliges banks

to look again at an application if a smaller firm

was turned down for finance.

Raising standards in our industry also

remains a vital part of our industry’s recovery

and it is important to remember how much has

changed. Cash bonuses are 85 per cent lower

than those paid out in 2007/8 and only three

of the top 100 highest pay packages given to

FTSE CEOs are for bankers.

To build on these changes, the BBA

supported the PCBS when it called for

the establishment of a standards board to

professionalise banking. It is a credit to our

industry that we have in Sir Richard Lambert

a former member of the Monetary Policy

Committee and one-time editor of the Financial

Times to oversee this important work. Sir

Chief Executive’s report

It has been a momentous year for Britain’s banks, their staff and the millions of customers they serve

To prevent businesses being shut out of the derivatives market following the introduction of EMIR, the BBA helped create an online utility to help businesses fulfil the new requirements

Helping Customers

claiming compensation for mis-sold Payment

Protection Insurance policies to help them

check their pay-out. Also in this field, the

BBA has worked closely with the Ministry

of Justice on the rules governing claims

management companies and tackling some

of their more egregious practices. This led in

2013 to measures to prevent them from taking

upfront fees and using materials that appear

to imply they are a government department by

prominent use of Ministry of Justice branding.

Customers must now receive some benefit

before paying fees and it must be made clear

who they are dealing with, which is not a

government department. Further consultation

on other issues is continuing, with measures

already taken to make the claims management

companies responsible for the call centre

activities which generate their leads.

One landmark reached in February 2013 was

the fifth anniversary of mylostaccount.org.

uk which reunites bank, building society

and National Savings & Investments

(NS&I) customers with

forgotten funds through a

single website. The

free service was

launched by the BBA, Building Societies Association and NS&I, covering 36 banks

that take retail deposits in the UK as well as all UK building societies and NS&I

products. More than 2 million people had visited the website over the first

five years, 580,000 search applications had been made and 315,000

people had retrieved £645 million of funds.

Finally, the industry’s efforts to improve its help for

customers appear to be starting to have an effect.

A survey published by the Institute of Customer

Service at the start of 2014 found that banks

and building societies were rated by

their customers slightly above

average on service in the league

table of organisations

dealing directly with

customers.

Helping customers – both

consumers and businesses – is

the first of the BBA’s three core

priorities, and 2013 saw many policy initiatives

to that end. One of the most significant was

the launch of a new BBA Consumer Panel in

April, chaired by Gillian Guy, Citizens Advice

Chief Executive. It brings together consumer

advocates, leading charities and senior bankers

to identify areas where banks can improve the

service they offer to customers. The BBA also

set up a Service Improvement Group of senior

bankers to drive forward implementation of any

changes agreed by the Consumer Panel.

Even before the Panel started its work,

progress had been achieved in 2013 on three

long-standing customer issues: a streamlined

process for switching cash ISAs was rolled out;

the Payments Council successfully launched a

new procedure for switching current accounts;

and the BBA’s appeals process for businesses

turned down for loans led to well over a third

having secured credit by the year-end. There

is more about these achievements on the

following pages, as well as an update on what

the BBA is doing to protect customers from

financial crime.

The European Union plays a vital role in both

the legislation on and regulation of financial

services. While many of the most high profile EU

initiatives have been focused in recent years on

measures to protect the banking system and

individual banks after the financial crisis, work

at the European Commission has continued

on consumer protection. The aim of the

Commission is to ensure that across the single

market, all banking consumers have broadly

similar access rights and protection levels for

a range of financial products. The BBA aims

to work with EU legislators to ensure that the

UK’s mature and developed banking system

is not subjected to undue costs from changes

that have only marginal benefits, if any, for UK

consumers.

During 2013, the BBA followed closely

the EU Payment Accounts Directive which

covers: cross-border access to bank

accounts; switching accounts to another

member state; and greater transparency on

customer charges across the EU. The BBA

supported the first and third of these, subject

to workable arrangements such as ensuring

that a customer is able to demonstrate a

genuine reason for opening an account in

another member state in order to minimise

the risk of financial crime. The BBA has also

been supportive of the increased transparency

measures to help customers better understand

what they are signing up to. However, the BBA

doubted that there was sufficient demand

for cross-border switching and during 2013

debated the challenges involved in cross-

border switching at length with Commission

officials and MEPs.

IMPACT OF EU LEGISLATIONThe BBA also keeps a close eye on the impact

of EU legislation on business customers.

A good example of this is the European

Market Infrastructure Regulation (EMIR), the

cornerstone of reforms intended to reduce

risks in derivative markets after the financial

crisis. This affected businesses outside the

financial services industry such as farmers and

mechanics that rely on derivatives to protect

them against fluctuations in exchange rates and

commodity prices. Should these businesses fail

to meet their obligations under EMIR, they could

ultimately be shut out of derivatives markets.

So in partnership with ISDA and Markit, the

BBA facilitated the creation of an online utility

to help these firms fulfil key features of their

requirements.

Another group of business customers that

the BBA works with are those led by women

and black and minority ethnic communities. In

partnership with Birmingham University’s Centre

for Research in Ethnic Minority Entrepreneurship

(CREME) and other professional bodies, the

BBA supports the Enterprise & Diversity Alliance

(EDA) which has created an innovative network

to promote minority entrepreneurship.

Other 2013 initiatives included a debt

management protocol to ensure that customers

with debt problems are treated sympathetically

and positively, and that all lenders should

receive sustainable payments in proportion to

the amount of money that they are owed.

ADVISING CUSTOMERS IN NEEDThe BBA produced with

Which? magazine a

Money-Saving Expert

guide for people

The main high street banks operate 142 million personal current and deposit accounts, 8% more than six years ago

One of our three core priorities is ‘Helping Customers’. Last year saw us take continued steps to achieve this aim through policy initiatives such as the BBA Consumer Panel

Helping customers

Helping Customers

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Helping Customers

Increasing competition

The BBA has supported the

Government’s often-stated aim

of increasing competition in the

banking sector, as a way to improve services

to customers and raise standards. Two new

measures to encourage account switching

were implemented in 2013. The BBA also

worked with the Government to find ways of

encouraging the growth of ‘challenger banks’,

usually new entrants to the market.

The first measure to promote account-

switching was a new electronic service for

switching money in cash ISAs, completed

in January 2013 in time for the peak ISA

investment period before the end of the tax

year. The Office of Fair Trading (OFT) reported

in March 2013 that the new switching process

was more than 50 per cent faster, had halved

complaints and had allowed customers to

benefit from higher interest rates more rapidly,

putting up to £8 million back into families’

accounts each year. The BBA’s role was to

co-ordinate the banks’ participation in the

scheme with each other and with regulators as

well as encouraging savers with dormant ISAs to

shop around.

SHOPPING AROUNDThe second account-switching initiative was

the introduction by the Payments Council of a

streamlined procedure for switching current

accounts in September 2013. The new

switching service created a hassle-

free process for completion in

seven working days, compared with up to 30 days under the previous system. By the

end of 2013, more than 300,000 switches had been processed, 99.6 per cent within

the seven-day deadline. An OFT survey had shown that most people feel no need to

switch because they were happy with their bank, and many saw no point in switching.

But 20 per cent had lacked the confidence to switch and the new service helps promote

competition and innovation for the benefit of customers.

In order to support the growing number of banks entering or expanding in the UK, the

BBA established a ‘challenger bank’ panel to devise policies that would create a level

playing field across the industry. Through engagement with the Treasury and the Bank

of England, the panel offered a view of the primary issues and concerns of challenger

banks. The BBA set out five measures which could reduce or remove barriers

to growth:

Easing the capital requirements to allow small challenger banks to

compete on mortgages

Extending the easier approach for authorising new banks to

established challenger banks

Allowing challenger banks faster access to the

Funding for Lending Scheme

Encouraging local government to place

their funds with challenger banks

Giving challenger banks a channel

to engage with regulators

through a challenger

bank advisory

panel.

Innovations such as the new current account switching service allow customers to find the best deals and change provider more easily

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There are 59 million credit cards

and 89 million debit cards in

issue in the UK, used to make

plastic payments through 1.6

million point of sale terminals

Helping Customers

Universal Credit

In retail banking, the BBA

successfully helped the Department

for Work and Pensions (DWP)

identify suitable banking accounts for recipients

of the new Universal Credit, replacing six

existing in-work benefits. In most cases

these will be the basic bank accounts which

have already attracted more than 9 million

customers.

A significant obstacle to opening bank

accounts for many low-income people is that

they do not have the necessary documents

such as passports and driving licences for ID

purposes. The DWP has agreed that the letters

confirming eligibility for Universal Credit will tell

recipients that they are acceptable ID when

opening a bank account.

By working closely with the DWP, the BBA

has been able to ensure that the right banking

products are available in time for the roll-out of

Universal Credit.

We have been working with the Department for Work and Pensions to ensure that recipients of the new Universal Credit benefit have suitable bank accounts

WORKING FOR SOCIETY’S MOST VULNERABLEThe BBA helped develop best practice for dealing with vulnerable customers:

bereavement and hearing loss.

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PROMOTING DIVERSITY IN BUSINESSIn 2013 the Government’s reports into

women-led and ethnic minority-led businesses

welcomed the work the banking industry is

doing in these areas. Diversity in business is

an area where the BBA has made particular

progress, working alongside women business

networks, universities and diversity partners

such as the Enterprise Diversity Alliance. Future

innovations include extending the BDRC

SME Finance Monitor to include questions for

women and ethnic minority businesses and the

upcoming launch of the BBA Business Diversity

Council comprising leading entrepreneurs and

academic specialists on diversity.

The BBA has also worked with the Bank of

England on the Funding for Lending Scheme

(FLS) to support business and household

lending. Launched in July 2012 by the Treasury

and the Bank in co-operation with the BBA,

the Scheme was extended in April 2013.

Subsequent improvements to the scheme,

including recommendations by the BBA, aimed

to promote the widest access. There is clear

evidence that the Scheme has delivered its

objective of ensuring sufficient liquidity in the

banking market as well as driving down the cost

of borrowing for businesses more generally.

Details of the banks participating in the

scheme are listed on Better Business Finance,

with information on their services and products.

Some offer cash-back on new loans, while

others offer discounted interest rates or loan

finance with no arrangement fee. The BDRC

SME Finance Monitor found an increasing

level of awareness of the FLS during 2013 and

the Federation of Small Businesses’ quarterly

surveys confirmed its positive impact in

reducing loan price.

The BBA has also worked with the

Government on launching the British Business

Bank, which is tasked with working with the

private sector to produce more effective and

efficient finance markets for SMEs. The new

Bank will consolidate, simplify and centralise

the numerous government support schemes

for businesses. It will be aided by secondments

from member banks and will work alongside

the vibrant private finance sector, with a

focus on identifying market failures, plugging

gaps and overcoming regulatory obstacles

facing finance providers seeking to lend to

businesses. The Enterprise Finance Guarantee

Scheme is a good example of this partnership

in action.

The BBA has contributed a number of other

Government initiatives, such as contributing

to the small business strategy and credit data

review, and working with ministers on initiatives

to provide long-term tax incentives for business

angels, and to extend the annual income tax

investment allowance. In addition, the BBA via

its Export Finance Committee has worked with

UK Trade & Investment and UK Export Finance

to design an internationally competitive export

finance package. Many of the improvements

recommended should come through in 2014.

SUPPORTING ENTREPRENEURSThe BBA backs the Centre for

Research in Ethnic Minority

Entrepreneurship’s new Enterprise

and Diversity Alliance (EDA), an

innovative network dedicated

to the promotion of minority

entrepreneurship. EDA’s activities

include:

and professional associations for

the benefit of minority enterprise

minority businesses and the

finance sector

innovative ways

business and communities.

The BBA has also worked with the Government on launching the British Business Bank, which is tasked with working with the private sector to produce more effective and efficient finance markets for SMEs

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Supporting Businesses

The BBA worked closely with the Government, the Bank of England and

leading business organisations throughout 2013 to support access to finance

for small and medium-sized enterprises (SMEs). While there is no room for

complacency, there was evidence as the year went on of the positive impact of various

schemes introduced to ease and cheapen credit availability.

The BBA’s leading message on business lending throughout 2013 was that gross, or

new, lending to SMEs was rising, reaching more than £12.4 billion in the last quarter of

2013. However, net lending remains slightly negative as businesses build up high cash

reserves and continue to pay down debts.

Boosting bank lending, and thus supporting UK growth, remains a priority for

the industry. Research shows that the key to achieving this is increasing the

number of businesses that are confident about their chances of getting

credit. The BDRC SME Finance Monitor found that as many as

270,000 businesses that want to apply for finance never get

round to it, perhaps because they fear that they have little

chances of success.

To tackle this issue, the BBA launched a

campaign with several high street banks

to let businesses know that they are

a lot more likely to get finance

than they think. While

only 37 per cent of SMEs planning to apply for

finance believe they will get approval from their

bank, actual approval rates are almost 67 per

cent. The campaign also raised awareness of

the Independent Appeals Process described

on page14 as well as other forms of business

support offered via Better Business Finance.

Supporting SMEs is one of Europe’s leading

initiatives and the BBA provided significant input

into the EU’s long-term finance consultation,

export agenda and participated in various

roundtables on the issue both directly and via the

European Banking Federation.

Other initiatives the BBA is pursuing include the

landmark agreement with the UK Government to

publish postcode lending data on SME lending

and the establishment of an Enterprise Research

Centre. For example, significant work with the

Automotive Industry Forum led to an agreement

on a finance support framework for businesses

in the automotive supply chain. In addition, an

automotive firm was the recipient of investment

by the bank-backed Business Growth Fund

made its, proving the value of long-term patient

equity capital for companies in high-growth

industries. The BBA’s business finance team also

ran more than 40 workshops and dinners with

business partners across the UK to provide local

businesses with insight into topical finance

and export issues.

Finance for small and medium-sized businessesThere is evidence that various mechanisms supported by the BBA are having a positive impact on increasing access to finance for small and medium-sized businesses

WWW.BBA.ORG.UK 15

CUSTOMER-LED AND INDUSTRY WIDE…

Technology is connecting banks and their customers more strongly than ever before, giving customers the service they want and deserve

Industry-wide metrics for the Barclays, HSBC, RBS, Lloyds Banking Group and Santander except where marked*Metrics relate to four of the fi ve banks. For more information please go to www.bba.org.uk/waywebanknow

Banking on the Move

A revolution is underway in how people spend, move and manage their money

Banking on the move in 2013

Millions of customers are harnessing

easy-to-use technology that allows

you to bank wherever and whenever

you please.

Some apps offered by banks have already

had more than a billion uses. In a single year the

number of mobile phone banking transactions

has doubled. This is a much faster take-up than

internet banking experienced in the last decade.

This technology is saving customers money

and time. Opting to receive text alerts can

help avoid charges. Debit cards fi tted with

contactless technology cut queues in shops.

The Way We Bank Now is a world away from

just a few decades ago, when a customer could

face a weekend without cash if they failed to

make it to their bank branch by 3:30pm on a

Friday afternoon.

For millions of people today, banking is on the

move.

28,415,000cards with contactless

technology

475.7 milliontext messages sent to customers in 2013*

average app users a week

average mobile and internet banking

transactions per week in 2013

2012 2013

Tesco Bank – 85% of transactions are now done via the internet

Metro Bank – all cashiers use tablet

computers

9.1

mill

ion*

18.6

mill

ion

12.4 millionbanking apps downloaded

39,999,149

The appeal scheme for SMEs which have been turned down for credit is working well and helping to improve standards and customer service

Appeals scheme for business loans

The independent appeals scheme was established by five of the largest UK

retail banks in April 2011 and now encompasses banks in Northern Ireland.

As it approaches its third anniversary, it continues to prove its value to SMEs

wishing to challenge a bank’s decision when initially turned down for credit.

By the end of 2013 the total number of appeals received had reached close to 8,000,

with 37.5 per cent of businesses being successful in overturning the initial decision as a

result of more information becoming available and an improved dialogue with the bank.

This has put nearly £40 million into the hands of those businesses making a successful

appeal as well as into the real economy.

INDEPENDENTLY REVIEWEDWhilst that money is welcomed by the recipients, under the leadership of

Professor Russel Griggs OBE, the Independent Reviewer, the scheme

is constantly looking for ways to improve the process of applying

for business finance and dealing with applications in the first

place.

Banks are looking at how automated decline

decisions for borderline applications can be

further reviewed before a final decision

is reached. Credit card providers

have been looking at best

practice for applications,

which has resulted in

a fall in overturn rates and customers getting

the correct decisions earlier. And the banks,

working with the BBA and the credit agencies,

have issued a new credit-scoring guide to give

businesses tips on how they can improve their

credit score before they ask for finance.

Also in 2013, the BBA and contributing

banks launched a new online “Appeals Button”

that directs businesses to a central site where

they can access the relevant appeals process

for their bank. The button features on the

websites of leading business groups as well

as industry and government-backed sites.

All participants have also appointed a senior

person as an “Appeals Champion” to help

promote and manage the appeals process

within their bank.

The BBA believes that the independent

appeals scheme is robust and is making a

difference, helping improve standards so that

customers get a better service. Not everyone

who is successful in their appeal is awarded

the full amount that they applied for, but they

receive a sum which leaves them and the bank

satisfied. And those who are unsuccessful often

say they have gained a better understanding of

why the bank made its decision. Many plan to

reapply in six or nine months when they expect

a better chance of success. As Professor

Griggs says: “The appeals process

has made a useful contribution to

encouraging better conversations

between banks and their

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Promoting Growth

essential to restoring economic growth. The

BBA has worked closely with the Government

on the Funding for Lending Scheme and on the

creation of a British Business Bank as a focus

for SME lending.

SUPPORTING BUSINESSESA BBA initiative to promote greater transparency

on the sometimes unclear SME finance market

was the publication in December of data on

bank lending in each of Britain’s 120 postcode

areas. The figures, which are now being

published quarterly, showed that SMEs in the

majority of regions were depositing more than

they were borrowing. However, in most areas

outside London, the South East and East Anglia,

SMEs were getting a share of total lending

greater than their regional share of SME turnover.

In other words, the areas that need finance the

most are getting more funding.

Many of these issues featured in the BBA

submission to the Treasury ahead of the

Autumn Statement in December. It stressed

the importance of finding the right balance

between building a stable financial system

while continuing to support growth, and of the

need to protect the competitiveness of the UK’s

financial services industry. It also emphasised the

BBA’s commitment to increased competition in

banking to improve services to customers

and raise standards. Access to

finance issues highlighted

included support for export

finance, improved

access to ‘patient

capital’ and

suggestions to improve the operation of the Business Bank.

One other threat to growth in 2013 was the proposed Financial Transaction Tax

(FTT), advocated by 11 EU member states – some of which were planning to go ahead

with their own versions. The BBA joined forces in May 2013 with the CBI and the EEF

manufacturers’ organisation to write to Herman Van Rompuy, President of the European

Council, calling for the proposals to be substantially reconsidered. Describing them as

a ‘tax on growth’, the letter said that the FTT as proposed would pose a major risk to

Europe’s recovery by increasing the cost of borrowing for businesses – especially smaller

ones that depend on bank finance. The BBA also successfully argued the case for

legal consideration, which led to the UK Government challenging the proposal

and the Legal Service of the Council of Europe concluding that key elements

of the tax would be unlawful.

As the UK economy has returned to more normal levels of

growth, there is a danger that the need for a balance between

regulation and growth will slip from view. The BBA will

continue to monitor this very closely.

Promoting Growth

Banks play an important role in

economic growth, especially in the

UK where the finance industry is

the country’s largest export industry. The BBA

therefore works to explain and promote the role

of banking for households, businesses and the

economy, as well as promoting financial literacy

in schools. In the years since the financial crisis,

new legislative and regulatory measures have

been introduced nationally and internationally

to stabilise the banking system and encourage

more sustainable growth. This has, however,

introduced a new element in the BBA’s work

which is to ensure that an appropriate balance

is struck between regulation and the need to

support the economy as it recovers by avoiding

unintended consequences (see overleaf).

STRUCTURAL REFORMS TO BANKINGThroughout 2013 there have been two main

focuses in the BBA’s work in respect of this task.

The first was how the recommendations of the

the ICB were to be implemented, in particular,

ring-fencing the retail operations of banks to

make it less likely that the taxpayer has to step

in to protect consumers and small businesses.

The second was the PCBS, set up with a remit

of minimising the risk of banking scandals

such as that over LIBOR and increasing the

accountability of bank managements in such

cases. The Financial Services (Banking Reform)

Act which passed into law at the end of 2013

included many measures recommended by both

bodies.

There is more on the ICB work below,

and the BBA’s engagement with PCBS on

page 28. But one PCBS recommendation

with a potentially negative impact on growth

related to the leverage ratio, where the Basel

Committee on Banking Supervision, which

sets international guidelines for banks’ capital

adequacy, had proposed a ratio of 3 per

cent. The PCBS advocated a higher ratio and

proposed giving the role of determining the UK

ratio to the Financial Policy Committee sooner

than 2018. The BBA supported the introduction

of a leverage ratio, but opposed attempts to

introduce a higher ratio for the UK which would

create problems for both banks and customers.

16 WWW.BBA.ORG.UK

For customers, it could put up the cost of

mortgages while creating incentives for banks to

prioritise riskier lending.

The availability of funding for SMEs has

been a hot topic since the financial

crisis, with a lively debate over

whether demands for higher

levels of bank capital

were holding back

the lending so

Promoting Growth

The BBA plays an important role in ensuring a balance is struck between new legislative and regulatory measures and supporting economic recovery

The BBA’s Autumn Statement submission stressed the importance of building a stable financial system while continuing to support growth and protecting the competitiveness of the UK’s financial services industry

WWW.BBA.ORG.UK 19

The ICB chaired by Sir John Vickers

reported in 2012, with a clear

focus on financial stability. Its main

recommendations were intended to deal with

the perception that banks were ‘too big to

fail’, which forces taxpayers to intervene in the

interests of retail customers when things go

wrong. The solution recommended was to ring-

fence banks’ retail operations, separating them

from wholesale and investment banking which

could be allowed to go down without a threat

to retail customers. The PCBS added to this

formula in February 2013 with a call to ‘electrify’

the ring-fence to deter banks from attempting

to breach or to include some riskier activities

inside the ring-fence.

The PCBS report made additions to the

customer offering and conduct of business

requirements to ring-fencing in the primary

legislation of the Financial Services (Banking

Reform) Bill. However, the BBA – and indeed

Parliament – had always seen that it would be

the secondary legislation that would contain the

real detail: the nature of the services that would

be provided to the banks’ core client group. It

also become clear that the banks would not be

able to provide some of the services their SME

clients wanted because those services would

be outside the ring-fence.

One example was hedging

products: simple swaps and

futures could be provided to

SMEs inside the ring-fence, but cheaper and more flexible options could not. On trade

credit, the proposals permitted the issue inside the ring-fence of documentary credits

and guarantees, because they use standard International Chamber of Commerce

(ICC) documentation. But they potentially excluded standby letters of credit and other

contracts for which there is no ICC documentation, which was also true for Islamic

Finance. One further issue was whether the certification procedures allowing large

organisations and high net worth individuals to exercise their right to bank with the non-

ring-fenced part of a group were too bureaucratic.

The BBA provided the Treasury with a list of these and other technical issues

raised by the legislation. When it published a feedback statement in late

December, the Treasury acknowledged the importance of the issues raised

and accepted the need to work through them. A very constructive

dialogue has begun in 2014, moving ring-fencing from the talking

shop to effective implementation, while at the same time

ensuring that ring-fenced banks can continue to meet

legitimate customer needs.

Ring-fencing retail bankingThe Independent Commission on Banking recommended ring-fencing banks’ retail operations, separating them from wholesale and investment banking

18 WWW.BBA.ORG.UK

as increased transparency for investors and

prescribing the level of liquidity available in MMFs

to ensure investors can redeem their investment

when they wish. These funds are an important

cash management tool for corporate treasurers,

charities and universities as they allow institutions

to diversify risk across their investments. In turn,

the investments made by MMFs provide short-

term finance to European financial institutions,

corporations and governments. However, the

Commission also requires Constant Net Asset

Value Funds to hold a 3 per cent net asset value

buffer unless the European Parliament and

Council can agree on an alternative solution.

If adopted, it will render these funds entirely

uneconomical and early indications suggest that

at least half will close.

Another example of unintended

consequences is the impact on exporters of

initial attempts to give statutory definition to

the ring-fencing of banking for households

and SMEs based upon the concept

recommended by the ICB. They could find

it harder to reduce currency and commodity

pricing risks by acquiring some derivative

products under the proposed arrangements.

Exporters could also be challenged by new

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Promoting Growth

Many of the banking reforms that

have followed the financial crisis

have allowed banks to offer the

products and services their customers want in

a manner that restores trust and confidence.

But a recurrent theme in the BBA’s work has

been drawing attention to the unintended

consequences of legislation, which may be

necessary and desirable but not sufficiently

thought through.

The potential trade-off between growth and

tougher regulation is clearly one. Regulatory

demands to boost capital and liquidity often

leave banks with little alternative than to de-

leverage, choking off the supply of credit to

SMEs in particular. There are alternative non-

bank sources of finance such as crowd-funding,

but they continue to account for only a small

proportion of total SME lending. With existing

capital requirements already making it hard

for EU governments to finance infrastructure

projects, the European Commission is now

trying to encourage ‘good securitisation’ after

the deeply flawed pre-crisis sub-prime lending in

the US made securitisation a dirty word.

Recent proposals made by the European

Union in September 2013 for a regulation of

Money Market Funds (MMFs) could also bring

unintended consequences. These proposals are

presented by the European Commission as part

of the EU’s efforts to ensure that the tightening of

capital in banks does not lead to systemic risk

shifting to what is commonly referred to as the

‘shadow banking’ sector.

There are many positive elements of the

regulation which BBA members welcome, such

One of the BBA’s priorities has been to ensure that new regulations do not negatively impact on customers or growth

Unintended consequences of regulation

be beneficial, but the proposed changes could

make it hard for SMEs to find banks able to

support trade in high-risk markets. It is simply

not possible to find counterparties in some

developing economies which can comply

with the level of checks that the new rules

would require. Such issues could undermine

the Government’s drive to encourage exports

to the future powerhouses of the global

economy. Progress is being made on finding

the means of addressing these initial statutory

shortcomings.

One other subject of concern is financial

advice, where the FCA’s Retail Distribution

Review (RDR) has introduced measures to help

customers buying savings products and raise

standards in the sales process. However, the

additional costs associated with the RDR have

resulted in a significant reduction in the number

of bank-based advisers. Customers increasingly

have to rely on non-advised or execution-only

services to meet their long-term savings needs,

which was hardly the intention of the new

regime.

A recent paper from the International

Monetary Fund (IMF) on responses to the

financial crisis found that policymakers do not

always discuss, assess or even recognise the

complexities and trade-offs between different

policy objectives. The IMF recommended that

policymakers should think about the system as a

whole when considering new regulations, focus

on the incentives they create and prepare a Plan

B in case preventative measures fail. Failing to

recognise these complexities and trade-offs can

often leave consumers and SMEs worse off.

The BBA made several recommendations for improving the EU’s policy-making process which had been under considerable strain from the volume of legislation in response to the financial crisis

European response to the financial crisis. Established only in 2011, they had needed

to cope with a wave of legislation made greater by the creation of the banking union.

The EBA, it said, should be seen as a key ally in protecting the single market from

protectionist interests and should be championed by the UK.

Finally, the BBA turned to the influence of the UK on European legislation

in financial services. The expansion of the EU and consequent changes

in the decision-making process had diminished the influence of all

member states, it said. But the UK’s reputation for leadership in the

industry and as a source of technical expertise still counted for

much. However, it was disappointing that the UK remained

significantly under-represented among the staff of EU

institutions, representation that continues to shrink as

more experienced staff approached retirement. For

example, the number of UK nationals on the staff

of the European Commission had fallen by 24

per cent in seven years and was now 4.6

per cent of the total (against 9.7 per cent

for France). A spell in EU institutions

should be regarded as part of any

senior public service career, the

BBA concluded.

a key factor in the attractiveness of the UK

as a global financial centre and its growth

since 2001, as well as a significant asset

for the EU as a whole. Rather than too

little subsidiarity, there was inconsistent

implementation of rules across the EU, despite

the efforts of the European Banking Authority

and the Committee of European Banking

Supervisors. There was a need for further EU

action to ensure greater consistency in the

implementation of rules to provide the industry

with a level playing field.

In retail financial services, however, the BBA

questioned whether EU-level action was always

fully justified by the principle of subsidiarity,

or by cost-benefit analysis – and attempts to

harmonise them were fraught with difficulty.

One example of that was the very different

ways that the Consumer Credit Directive 2008

had been implemented in different markets,

because those markets had different structures.

The BBA recommended that the European

Commission retail services legislation should

focus on consumer protection, rather than

trying to create a single cross-border market

before existing markets were ready for it.

BROADER ENGAGEMENT The BBA made several recommendations for

improving the EU’s policy-making process

which had been under considerable strain

from the volume of legislation in response to

the financial crisis. The legislative process had

also been significantly complicated by the

expanded role of the European Parliament. In

particular, the trilogue negotiations between

the Council, Commission and Parliament often

lack transparency or predictability, and need

greater support to produce better quality and

more consistent outcomes. Inappropriate

deadlines for drafting regulations and standards

after legislation was agreed required better

timetabling, especially to permit industry review

before they are adopted.

Questioned about the shift towards

regulation and supervision at the EU level,

the BBA said that the establishment

of European supervisory authorities

such as the European Banking

Authority (EBA) had on

balance been a beneficially

important part of the

20 WWW.BBA.ORG.UK

subject to distinctive cultural traditions and

policy choices.

BOOSTING THE SINGLE MARKETThe BBA believed, it added, that the single

market for wholesale financial services was

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Balance of Competences

financial services, and that the allocation

of competences to legislate in these areas

should differ. Wholesale markets are by their

very nature cross-border, and thus require

consistent rules for the conduct of business;

retail markets, by contrast, are characterised

by consumers with a home-country bias and

We have responded to HM Treasury’s call for evidence on the balance of competences between the UK and the EU in financial services and the free movement of capital

Balance of Competences between the EU and UK

The UK Government launched

a two-year review in July 2012

to examine the balance of

competences between the UK and the

EU, part of a factual analysis of what EU

membership means for the UK national

interest. In October 2013, HM Treasury sent

out a call for evidence on the Balance of

Competences in financial services and the free

movement of capital, from the perspective of,

among others, banks, insurance companies,

pension companies, asset managers and

market infrastructure providers. The BBA sent

in its response in mid-January 2014.

The BBA began by saying that the single

market for financial services was a significant

factor in the success of the UK as a financial

centre – and therefore of considerable value

to the UK economy. Almost a third of the

£46.3 billion trade surplus generated by the

financial services sector arises from trade

with other EU countries. A further benefit is

that EU membership enhances the ability of

the UK to achieve beneficial agreements with

third countries that facilitate the development

of global markets and effective regulatory

standards.

In reply to a question about whether the

EU rules are proportionate and respectful

of the principle of subsidiarity, the BBA

acknowledged that the development of

the single market had required ‘top-down’

action. However, it added that there was a

marked difference between the characteristics

of the markets for wholesale and retail

The BBA is working with banks to ensure businesses benefit from the fullness of a mentor’s experiences, such as market knowledge, how to prioritise workloads and insight into planning and strategy

Mentoring

The value of mentoring for small

and micro-enterprises is well-

established, with reports and case

studies showing how suitable mentors can

help such businesses to start, survive, thrive

and grow. Thousands of business owners are

finding that mentoring makes a real difference:

a recent survey from the Department for

Business, Innovation and Skills found that 94

per cent of businesses using mentoring have

seen benefits, which include higher relative

turnover.

In July 2011, the BBA alongside Barclays,

HSBC, Lloyds Banking Group, Royal Bank

of Scotland and Santander launched a bank

mentoring scheme. Its aim was to put 1,000

suitably trained bank employees into the

business market to provide help and support

to that group. The bank mentors are currently

helping several thousand businesses across

all sectors, often giving them the confidence

they need to make good business decisions.

More generally, this has given banks a wider

understanding of the issues and challenges

facing small businesses.

The initiative also created the mentorsme

website - the first online gateway for UK

business mentoring. It contains information on

how to find a mentor as well as how to become

one. Within three years, mentorsme has

grown enormously: the number of mentoring

organisations on the portal stands at over 120,

housing more than 27,000 mentors.

During 2013 export mentoring clubs around

the UK supported hundreds of businesses

and there was a further focus on specialist

mentoring, including women entrepreneurs,

ethnic minority businesses and specific

industrial sectors. A good example of a new

initiative is mentoring for the agricultural sector.

There are now 300 specialist farming mentors

helping farmers think about issues such as

succession planning, business development

and the resilience needed in dealing with

climate change. Launching the initiative

involved working closely with the Department

for Environment, Farming and Rural Affairs, the

Small Firms Enterprise Development Initiative

and farming organisations.

A new Enterprise Mentoring Advisory

Council was created in 2013, co-chaired by

the BBA and bringing together key mentoring

and business groups, sector specialists and

professional bodies. Its objectives include

promoting awareness of the benefits of

mentoring, acting as a central policy advisory

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Promoting Growth

UK high street banks’ overall lending to companies outside the non-bank financial sector stands at £281bn

group and supporting continuous professional

development in enterprise mentoring.

To celebrate the success mentoring brings

to business growth and development, the

inaugural Excellence in Enterprise Mentoring

Awards was staged in London in November

2013.

The judges received over 100 nominations

from firms operating in a wide range of sectors.

Winners included a gaming business that exports

to Japan, a learning tool for the dyslexic that is

breaking all its sales targets and a company that

started by selling hummus in Waitrose and has

gone on to win a global contract with a major

airline. All the nominees benefitted from the help

and support of an enterprise mentor, many of

which were bank mentors.

A recurrent fear for the financial services industry since the financial crisis

is that the legislative and regulatory response is becoming fragmented.

The G20 Summit in London in 2009 showed a willingness to coordinate

actions to reflect the greater interconnectedness of global markets. Global institutions

such as the Basel Committee and the Financial Stability Forum (now the Financial

Stability Board – FSB) were bolstered to devise the necessary regulations and monitor

their implementation. But as the crisis has begun to recede, there is evidence of a

divergence in regulatory approaches around the world.

For example, structural reforms in banking have varied from the ring-fencing of

retail banks in the UK recommended by the Vickers Commission, to the US Volcker

proposal to separate proprietary trading from other banking activities and the EU’s

Liikanen Group proposal to carve out market-making and investment funding as well.

Material differences are also emerging between the EU and the rest of the G20 on

the implementation of the Basel III framework to strengthen the supervision and

risk management of banks. And attempts within the EU to harmonise credit

regulation across member states that have markedly different market

structures has run into significant differences.

This ‘Balkanisation’ of financial markets may create barriers

to entry, increase complexity, reduce competition and

provide opportunities for regulatory arbitrage. For

customers, it could mean higher charges due

to reduced competition or higher costs of

operating. There might be benefits

from reducing interconnectedness

and thus possible contagion

in crises, and also in

the emergence of

new service

providers, but the BBA is asking the G20 to

take steps to maintain a stable, equitable and

open financial system that is more likely to

support global growth.

In October 2013, the BBA published a

report on fragmentation entitled Beyond

boundaries: how to drive regulatory

coherence, which emphasised the need for

David Cameron, Barack Obama and other

G20 leaders to work for greater consistency.

It called for the FSB to be strengthened

to identify regulatory divergences, and for

supervisory colleges bringing together officials

supervising global institutions to coordinate

their thinking and identify inconsistent

regulation.

COHERENT REGULATIONIt also recommended that to enhance the

coherence of US and EU regulation, the

Transatlantic Trade and Investment Partnership

should help monitor cross-border financial

markets – with a focus on outcomes rather than

regimes. The EU, meanwhile, should be given

a mandate to push for global convergence in

financial services regulation, while not pushing

ahead with single market rules ahead of

completion of international negotiations. Other

single market recommendations included

measures to strengthen the quality, clarity and

consistency of regulation.

The fragmentation of global regulationIn response to fears that the legislative and regulatory response to the financial crisis is too fragmented, the BBA published a report emphasising the need for G20 leaders to work together for greater consistency

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Raising Standards

information from all their financial institutions

about the tax residency of their customers and

exchange that information automatically with

other jurisdictions on an annual basis.

The BBA has long called for global measures

to deal with tax evasion and helped ensure that

the UK-US agreement implementing FATCA

was workable and proportionate. In addition,

it ensured that the UK agreements with the

Crown Dependencies were consistent with the

FATCA model. The BBA has now established

itself as a leading voice with the OECD as it

begins to design the information exchange

framework.

DISASTER RELIEFRegulation at all levels often has unintended

consequences, as noted earlier. This became

apparent after the UK public donated over £23

million to the Disasters Emergency Committee’s

crisis appeal for Syria in March 2013. It proved

harder to move the money to its intended

recipients, because banks must comply with

international regulations to prevent terrorist

groups disguising funds as humanitarian aid.

Syria is also subject to international sanctions

which affect its banking system. In response

to these hurdles, the BBA, DEC and law

firm Freshfields Bruckhaus Deringer

published guidance advising

banks and agencies on

how to keep such

financial transactions lawful and ensure that money gets through to the intended

destination as fast as possible.

The DEC appeal in December on behalf of the victims of the Philippines Typhoon

showed once again the role of the banks in helping people respond to such

emergencies, with more than £3.8 million donated through bank branches.

The BBA’s statistics team also produces monthly credit card and high-street banking

as well as quarterly SME lending statistical releases to provide a snapshot of

lending behaviour amongst the UK’s largest banks. The team runs a loss data

consortium, bbaGOLD, to help improve operational risk management

practice, where participating institutions report and anonymously

share information about events they experience. And the BBA

has a seat on the Lending Standards Board which monitors

and enforces the Lending Code created by the BBA in

2011 to ensure that banks act fairly and reasonably

in dealing with customers of unsecured

credit such as loans, credit cards and

overdrafts.

24 WWW.BBA.ORG.UK

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The BBA has worked closely with the stakeholders responsible for introducing greater scrutiny of banking standards

Raising standards

There was no let-up in 2013 in the

flow of new legislation, regulations

and other initiatives designed to

further bolster banking stability following the

financial crisis. At the same time, there was

a notable shift towards greater scrutiny of

professional standards of behaviour in the

banking community, a matter on which the BBA

has been particularly active in pursuit of its third

priority: raising standards. All of this was played

out during a year when the Financial Services

Authority gave way to two new regulators:

the Prudential Regulatory Authority (PRA) with

responsibility for regulating banks, building

societies and insurers, as well as the stability

of the financial system; and the Financial

Conduct Authority (FCA) which regulates

the performance and conduct of individual

institutions and their staff. The BBA had worked

closely with the shadow teams which prepared

for both organisations to ensure a smooth

transition.

BANKING REFORM ACTThe passage of the UK’s Financial Services

(Banking Reform) Act has already been noted

in previous sections, with the primary objective

of restructuring banks to increase their stability

and eliminate the need for taxpayer intervention

during crises. The final report of the PCBS

called for a strengthening of the ring fence

to be erected around retail banking, but its

substantive recommendations – unsurprisingly

given its name – focused on measures to raise

standards in banking. There is more on page

28 on the BBA’s engagement with the PCBS

which included support for the creation of a

professional standards board.

The PCBS also called for a strengthening

of corporate governance with defined

responsibilities for senior bankers. These have

been reflected in the BBA’s training events

which are run throughout the year to increase

the operational efficiency and professionalism

of the industry (see page 32).

A priority for the BBA throughout 2013

has been restoring confidence in LIBOR, the

attempted manipulation of which led to the

creation of the PCBS. A review by Martin

Wheatley published in September 2012 set

out a 10-point plan to reform LIBOR, while

the Hogg Committee was set up to oversee

the tender process to find a new administrator

for LIBOR. The BBA worked hard with the

regulators and LIBOR banks throughout 2013

to implement the 10-point plan and with

the Hogg Committee throughout the tender

process. In July 2013 the BBA Board voted

unanimously to approve the transfer of the

administration of LIBOR to ICE Benchmark

Administration Ltd, as recommended by the

Hogg Committee. The transfer was completed

at the end of January 2014, with the new

administrator taking over a benchmark with

better regulatory oversight and improved

governance.

New measures continued to be promulgated

by the European Union ahead of elections for

a new European Parliament in May 2014. The

parliamentary elections will be followed later

in the year by the arrival of a new European

Commission. This five-year cycle inevitably

brings new perspectives and challenges,

particularly with the enhancement of the

Parliament’s powers to initiate legislation and

effectively veto proposals coming from the

Commission and the Council. Completing the

passage of legislation initiated during the terms

of the outgoing Parliament and Commission

was therefore a priority of great urgency in

late 2013. Political agreement on many of the

measures, including those on bank capital,

market regulation, Eurozone banking union and

bank recovery and resolution, was reached in

2014 just ahead of the parliamentary elections.

One continuing subject of controversy in

the industry was remuneration. The PCBS

called for a remuneration code for banks that

would involve longer bonus deferrals and allow

bonuses already paid out to be clawed back.

The PRA is currently consulting on this, with

the aim of having a code in place for the 2015

bonus round. The BBA supports such a code

provided it is couched in the right terms, but

opposed the European Parliament’s proposed

cap on bonuses – for more about this and

other European matters, see overleaf.

One other international issue that appears

to be heading towards a global solution is tax

evasion. The Organisation for Economic Co-

operation and Development (OECD) has drawn

up a single global standard for the automatic

exchange of financial account information

between tax authorities, largely

modelled on the US Foreign

Account Tax Compliance

Act (FATCA). It will

require jurisdictions

to obtain

The transfer of LIBOR to ICE Benchmark

Administration Ltd was complete at the end of January 2014

Bank recovery and resolution – and the Eurozone banking union

Agreement was reached at the end

of 2013 on the Bank Recovery and

Resolution Directive necessary to

ensure that failing EU banks can be wound

down in an efficient and predictable way

without recourse to public money. The BBA

has worked to ensure that the directive is

technically robust, including supporting bail-in

as the main solution to the ‘too big to fail’

problem – requiring shareholders and creditors

to bear losses in failure. Other concerns

included ensuring that the directive provided

the right incentives for banks and a framework

for investors to support cross-border co-

operation.

Negotiations on the new directive had been

greatly delayed by the need to incorporate

measures applicable to the Eurozone countries

following the government debt crisis in

Greece which broke in 2010. After prolonged

negotiations, the European Union agreed

to establish a banking union for Eurozone

countries in which the European Central

Bank would oversee a Single Supervisory

Mechanism guaranteeing the consistency and

quality of supervision across countries. Failing

WWW.BBA.ORG.UK 27

Raising Standards

for stability to be brought to the Eurozone.

For example, UK-based banks have many

Eurozone counterparties, some BBA members

have subsidiaries in the Eurozone, while others

operating in London are headquartered in

Eurozone countries. The BBA therefore took a

close interest in the negotiations to create the

banking union.

SINGLE MARKET BENEFITSOne BBA concern was that that the core

benefits of the single market could be lost if

the countries which had adopted the euro

forge ahead with an ever-closer financial

union. Another concern was ensuring that the

Eurozone countries do not dominate the rules

governing the single market to the detriment of

institutions based outside the Banking Union

zone. This could erode the real depth of the

London markets, which is an attraction for third

country banks looking for a European base. For

these reasons the BBA was supportive of the

introduction of a ‘double-majority lock’ which

requires a majority inside the Eurozone and a

majority outside it before a rule is passed in the

European Banking Authority.

The BBA has put in many submissions to ensure that the Bank Recovery and Resolution Directive, needed to ensure that failing EU banks can be wound down, is technically robust

Eurozone banks would be dealt with through

a Single Resolution Mechanism backed by a

Single Resolution Fund, to be raised by a levy

on Eurozone banks.

Although the UK is not a member of the

Eurozone, it is in the interests of British banks

London has more foreign banks (251) than any other centre in the world, ahead of New York, Frankfurt and Paris

WWW.BBA.ORG.UK 27

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26 WWW.BBA.ORG.UK

Raising Standards

The passage of the second Markets in Financial Instruments Directive is complete, but a large amount of secondary legislation remains to be drafted

Improving capital markets

The second Markets in Financial Instruments Directive and Regulation

(known together as MiFID II) was a key focus for the BBA in 2013. This

crucial piece of legislation seeks to update the 2004 MiFID Directive, which

reformed the single market in securities trading to take account of the more complex

marketplace and create safer and more transparent financial system that works for

the economy and society as a whole. The revisions will have implications for the way

everything from client assets to wholesale and retail conduct as well as secondary

trading and transaction reporting is regulated. When it is introduced it will represent one

of the greatest changes to the EU’s wholesale markets in a generation.

However, its passage through the EU legislative process has been far from smooth.

MiFID II started life as a simple review of MiFID but when the financial crisis hit, its

scope was expanded considerably. With the initial trilogue negotiations between the

Commission, Council and Parliament meeting with little progress, it was not until an

intensive round of meetings in the autumn that the log-jam was overcome. This

included the incorporation of the BBA’s work to secure a workable third

country regime and that custody would continue to be defined as an

ancillary, rather than as a primary, service.

While a political agreement has now been reached,

the BBA continues to feed into the drafting of the

secondary legislation and is playing a leading role

in the work of the cross-industry Joint-Trade

Association Committee.

A BUSY YEARAnother leading source

of engagement for

our members

throughout

2013 was EMIR, which enacts the G20’s

mandate for being about to centrally clear

derivatives in the EU. EMIR was passed

in 2012, but key questions regarding

implementation measures continued to occupy

the industry throughout 2013.

As well as raising standards, the BBA’s work

on EMIR involved helping clients fulfil their

representation obligations via the creation of an

online counterparty identification utility.

The BBA has also been heavily engaged

in the European Union’s review of the market

abuse regime. During 2013, the EU reached

political agreement for the revision of the 2003

Market Abuse Directive through two proposals

(a Regulation and Directive on criminal

sanctions). These measures are critical to

improving investor confidence in the operation

of capital markets and will be implemented

alongside MiFID II. Work on secondary

legislation and implementation has begun and

the BBA responded to the first discussion

paper in November.

Finally, the BBA spent 2013 conducting a

comprehensive overhaul of its capital market’s

committees, advisory panels and working

groups. This process led to the streamlining of

the BBA’s governance process and creation of

two new strategic oversight bodies – the capital

markets panel and the post-trade panel. The

BBA will continue to build on these reforms

in 2014 to ensure it best serves the needs of

members, client and customers. Ph

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Parliamentary Commission on Banking Standards

The BBA took a keen interest in

the Parliamentary Commission

on Banking Standards, and

only the Bank of England and the Financial

Standards Authority put in a greater volume

of evidence. Its major submissions included

one on professional standards and it greeted

the report by describing it as the most

important parliamentary report into banking in

a generation. That engagement has continued

since through a signifi cant contribution to its

call for higher banking standards.

The Government accepted most of the

recommendations after the report was published

in July 2013, and the regulators spelt out what

they intended to do to implement them in

the autumn. The report broke down into four

themes: strengthening individual accountability,

reforming corporate governance, securing better

outcomes through greater competition and

enhancing stability. The fi rst two attracted the

most attention.

Strengthening individual accountability

refl ected the PCBS desire to see clear defi nitions

of the roles of senior individuals – principally

with the replacement of the approved persons

regime with a senior managers regime. One part

of this is the toughening up of the pre-approval

process. Another is the introduction of a criminal

sanction for reckless conduct leading to the

failure of a bank and a reversal of the burden

of proof in cases of breaches of the regulatory

regime. Statements of principle will also be

rewritten from rules directed at the institutions to

those directed to individuals working in banks.

CORPORATE GOVERNANCEChanges to the approved persons regime

are also set to introduce a certifi cation regime

identifying key posts of signifi cance reporting

into senior persons. It will allow the regulator

to establish a chain of command and establish

who was responsible for any action. Additional

recommendations were made on the chain of

command for the risk function, internal audit and

compliance roles. The PCBS also strengthened

the role of the board, with bank bondholders

encouraged to take a more active stewardship

role.

Other key recommendations covered

remuneration, with longer deferral of bonuses

the ability to claw back previously vested

bonuses and 100 per cent claw-back where

banks receive state aid. The recommendations

on whistle-blowing will be considered after a

wider review conducted by the Department for

Business, Innovation and Skills.

The recommendations of the PCBS report

that needed statutory underpinning were taken

into the Financial Services (Banking Reform) Bill

which became law in December. The regulators

then had to work out what they needed to do to

implement the accepted recommendations. The

BBA is in dialogue with them, ahead of formal

consultation expected to begin in late Spring

2014.

Part of the fi rst theme of strengthening

individual accountability would be support for

the creation of a professional body funded by

the industry to promote higher professional

standards in banking (which might over time

be given a more formal role). The BBA had

supported this in a submission to the PCBS

in January 2013, saying that there was a lot

more that could be done to raise professional

standards. It urged consultation with the

regulator to avoid duplicating plans to raise

standards as the approved persons’ regime

for banks is replaced. And it advocated an

independent body to work with senior leadership

in banks to see what the industry could do to

enhance professional standards.

Sir Richard Lambert, former Director General

of the CBI, was appointed in September

2013 with the support of the seven largest UK

lenders to consult with all interested parties on

how to take forward the proposal for such a

body. Sir Richard looked for buy-in across the

industry and a broad range of stakeholders and

governance experts, and his initial report on

the results of his consultations in January 2014

was well-received. The BBA has welcomed the

initiative, subject to recognition of the diverse and

international characteristics of the UK fi nancial

services industry – it must not be ‘one size

fi ts all’.

The BBA supported the creation of an independent body to enhance professional standards

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28 WWW.BBA.ORG.UK

Working with the Parliamentary Commission on Banking StandardsThe PCBS contained far-reaching reforms that will fundamentally change the structure of the UK’s banking industry

We take the risk of financial crime seriously and our priority is to represent all of our members on this issue, whether they are smaller institutions or large organisations

Financial crime

The BBA gave evidence to the Home Affairs Committee for its report on e-crime, reassuring MPs that online fraud in banking has diminished and that any money stolen from customers was speedily restored

The BBA supports our members’

actions to address all types of

financial crime and security threats,

including money-laundering, fraud, sanctions-

busting, physical threats and cyber-attacks.

Financial crime remains a high priority for

politicians, policymakers, law enforcement

bodies and the media – and internationally

through bodies such as the United Nations,

Financial Action Task Force, Basel Committee,

the G8 and the G20. The European Union is

discussing a fourth Anti-Money Laundering

Directive, as well as its first Network and

Information Security Directive. The US is

also taking action over alleged breaches of

international sanctions and money-laundering

regulations which has affected some British

banks.

PROTECTING CUSTOMERSBanks need to be represented in UK and

international forums where these issues

are discussed, especially when it comes to

practical implementation. It is important to

make sure that policymakers are alive to the

challenges in balancing effective financial crime

controls with wider objectives such as access

to banking and expansion into new markets.

This agenda is particularly important to BBA

members, many of which are very international

and use the UK as an international banking

centre.

One BBA priority is to represent the full

range of its members. While some of the bigger

members devote a lot of resources to financial

crime, smaller members and foreign banks

with UK offices often have much less in terms

of compliance resources. The BBA provides

a mechanism for information and alerts from

the National Crime Agency (NCA) and City of

London Police to be disseminated to banks

through an online facility, and also advises

smaller institutions on reporting requirements.

With fraud against private banks and their

clients a growing threat, a new focus in 2013

was on working with this sector to produce

advice for them and their clients.

The risk posed by cyber threat actors is a big

issue for banks. The BBA gave evidence to the

House of Commons Home Affairs Committee

in April 2013 for its report on e-crime which

was published in July. The evidence served

to reassure MPs that online fraud in banking

had diminished and that any money stolen

from customers was speedily restored. The

BBA is now focusing its efforts on promoting

dialogue between the banking industry and

public authorities to address the risk posed by

cyber criminals and threat actors, with a global

perspective in mind.

The law enforcement arrangements in the

UK have evolved rapidly over recent years,

with the creation of the NCA and police

commissioners at a time of budget constraints.

BBA working groups now co-operate with the

NCA on cybercrime and money-laundering and

with the City Police on fraud, and can then feed

in members’ challenges in enforcement.

WWW.BBA.ORG.UK 31

Raising StandardsRaising Standards

European Union measures to bolster banking stability continued to be implemented

in 2013, with the final steps in implementing the Basel III capital adequacy standards

through the Capital Requirements Directive IV (CRD IV) and Capital Requirements

Regulations agreed in the second quarter. Regulators then started implementing the new rules,

both at European level through the EBA which is drafting technical standards, and nationally, in the

UK through the PRA.

DEBATING REMUNERATIONOne major area for discussion was remuneration, where the BBA had engaged with European

legislators in the run-up to the finalisation of CRD IV. It pointed out that the proposed bonus cap

would lead inevitably to higher fixed pay which would be harder to manage down in times of

financial stress and thus could reduce stability. Nonetheless, MEPs insisted on a maximum

bonus equal to base pay (or double base pay with shareholders’ approval), applying to

any material risk-taker working for an EU bank anywhere in the world. The BBA has,

however, successfully worked with the EBA to apply greater flexibility in defining

material risk-takers at more reasonable levels than initially proposed.

On other aspects of the Basel III agenda, the new standard required

banks to hold more and better quality capital, with a liquidity

coverage ratio which comes into play in 2015. Following

negotiations, including with the BBA, the Basel

Committee proposals for the high quality liquid

assets that banks have to hold was expanded

to include some securitisation structures

important to UK banks. On reporting

on capital ratios, with a lot of work

still to be done, the EBA

agreed to a six-month delay in the deadline

for reporting to 1 July 2014. The BBA also

successfully advised the PRA not to require

all capital held against Pillar 2A risks such as

pension liabilities to be Core Equity Tier One,

which would lead to further constraints on

lending.

Finally, the BBA managed through the

International Banking Federation to secure

amendments in the definition of assets for

the leverage ratio. As the implementation

process for these new regulations unfolds,

an overarching priority for the BBA will be to

ensure that harmonisation is not undermined,

either by national standards watering down the

EU legislation, or by the gold-plating to which

the UK is prone.

Banking stabilityThe EU has started implementing the Basel III capital adequacy standards and the BBA had engaged with European legislators on the issues on its agenda, such as remuneration and liquidity

The UK is the world’s largest single financial centre for cross-border banking, with over 18% of world activity P

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Member List

Member List

ABC International Bank plc

ABN Amro Bank NV

Adam & Company plc

Ahli United Bank (UK) Ltd

Aldermore Bank Plc

Allied Irish Bank (GB)/First Trust Bank -

(AIB Group (UK) plc)

Allied Irish Bank plc

Arab National Bank

Arbuthnot Latham & Co, Ltd

Australia & New Zealand Banking

Group Ltd

Banca Monte dei Paschi di Siena SpA

Banco Bilbao Vizcaya Argentaria SA

Banco de Sabadell

Banco Santander Group

Bank J Safra Sarasin (Gibraltar) Ltd

Bank Leumi (UK) plc

Bank of America NA

Bank of Baroda

Bank of Ceylon (UK) Ltd

Bank of China (UK) Ltd

Bank of Cyprus UK Limited

Bank of India

Bank of Ireland (UK) Plc

Bank of London and the Middle East

Bank of Montreal

Bank of Scotland plc

Bank of Tokyo Mitsubishi UFJ Limited

Barclays Bank plc

Barclays Bank Trust Company Ltd

BLOM BANK France

BNP Paribas Group

British Arab Commercial Bank Ltd

Brown Shipley & Co Ltd

Butterfield Bank (UK) Ltd

C Hoare & Co

CAF Bank Ltd

Cambridge & Counties Bank Limited

Canadian Imperial Bank of Commerce

Canara Bank

Cater Allen Ltd

China Construction Bank (London)

Limited

CIBC World Markets plc

Citibank International plc

Citibank NA

Close Brothers Ltd

Clydesdale Bank plc

Commerzbank AG

Commonwealth Bank of Australia

Coutts & Co

Credit Suisse Group

Credit Suisse International

Crown Agents Bank Ltd

Danske Bank A/S

Deutsche Bank AG Group

Duncan Lawrie Ltd

EFG Private Bank Ltd

Europe Arab Bank plc

FBN Bank (UK) Ltd

FCE Bank (Ford Credit Bank)

FIBI Bank (UK) Ltd

Ghana International Bank plc

Gulf International Bank BSC Group

Habib Bank AG Zurich

Habibsons Bank Ltd

Hampshire Trust plc

Harrods Bank Ltd

Havin Bank Ltd

HSBC Bank plc

HSBC Private Bank Limited

The following list details every member bank, professional associate and banking associate member of the BBA

WWW.BBA.ORG.UK 3332 WWW.BBA.ORG.UK

BBA EnterprisesSupporting the banking profession

BBA Enterprises (BBAE) is the

commercial arm of the BBA, which

is responsible for events, training,

associate member activities, venue hire and

publications. The list of BBA Events is lengthy

and diverse, embracing all aspects of banking

and delivered through conferences, seminars,

briefings, forums and roundtable discussions

with senior policymakers, regulators, opinion-

formers and key industry experts.

Highlights include Wolfgang Strohback of

the European Banking Authority speaking on

common reporting, Sajid Javid MP on the

future of payments and Eric Van Der Plaats

from the European Commission. More than

350 attended the BBA’s Annual International

Banking Conference and heard from Danny

Alexander MP, EU Commissioner Michel

Barnier, Sir Richard Lambert, Sharon Bowles

MEP, FCA chief executive Martin Wheatley

and Deputy Governor of the Bank of England

Andrew Bailey amongst notable others. Our

thought leadership events on issues such as

digital banking and cyber resilience have also

proved popular, bringing in experts from the UK

and abroad.

During 2013 BBAE Training launched its

new Learning Academy, which managed over

70 workshops, involving more than 1,300

participants and covering financial crime,

financial regulation, risk management and

other core topics. One new subject area

added to the programme is leadership, with

a workshop on Board risk management and

oversight targeted at non-executive directors.

Other developments in 2013 included

investment in a new e-learning platform,

working with the City of London Police on

economic fraud training, which has not only

appealed to the UK banking sector, but also

the international banking market. The BBAE

Learning Academy also took on the promotion

of industry related Professional Qualifications,

collaborating with leading bodies such as

the IFS University College, the International

Compliance Association and many other

world class institutions to deliver an aligned

programme of courses specific to the banking

sector.

Associate Membership is a fast-growing area

of BBAE, drawing in organisations from the

wider financial and related professional services

environment that directly support the banking

infrastructure. They include accountancy firms,

lawyers, management consultants, business

technology companies and business services

firms – all of which make London the foremost

banking and financial centre. Given the breadth

Banking employs more than 430,000 people in the UK – 1.6% of the total workforce. The top regions are London (146,000), the North West (45,000), Yorkshire and the Humber (42,000) and Scotland (39,000)

and depth of BBA activities and its importance

to these wider industries, a new associate

member joins the BBA every three weeks and

this growth has been particular evident with

technology businesses focused on security and

financial crime.

An additional part of BBAEs work is the

hiring of the Pinners Hall venue. This continues

to prove popular with an array of external

financial services firms. Meanwhile, BBAE is

also responsible for producing key industry

publications for our retail bank members’

branches. Many of these are sent directly to

customers and provide advice on a range of

issues, such as opening new accounts, ‘dealing

with debt’, rights concerning ‘You & your joint

account’ and our ‘Lending Code’. Ph

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COUNCIL’S RESPONSIBILITIESThe Council is responsible for the preparation of financial statements, in

accordance with UK Generally Accepted Accounting Practice, which give a

true and fair view of the state of affairs of the Association and of its income

and expenditure account. In preparing the full financial statements, the

Council has:

selected suitable accounting policies and applied them consistently;

made judgements and estimates that are reasonable and prudent;

followed applicable UK accounting standards; and

prepared the financial statements on the going concern basis.

The Council is responsible for keeping proper accounting records which

disclose with reasonable accuracy at any time the financial position of the

Association. The Council is responsible for safeguarding the assets of the

Association and hence for taking reasonable steps for the prevention and

detection of fraud and other irregularities.

So far as the Council at the time the report is approved is aware:

1) there is no relevant audit information of which the auditors are unaware;

and

2) the Council has taken all steps that ought to have been taken to make

itself aware of any relevant audit information and to establish that the auditors

are aware of the information.

APPROVEDSir Nigel Wicks

Chairman

Anthony Browne

Chief Executive

Ratified at an AGM of the British Bankers’ Association on Friday 16 May 2014

Financial StatementBritish Bankers’ Association (incorporating BBA Enterprises Ltd and BBA LIBOR Ltd): Extracts from Audited Consolidated Financial Statements for the year ended 31 December 2013

Financial Statement

Year to 31 December

2013£’000

Year to 31 December

2012 £'000

INCOME

Subscriptions 7,515 6,222

Other income 4,483 2,452

Sales of publications and conferences 1,188 1,301

Bank interest 64 104

12,062 9,966

EXPENDITURE 10,586 9,549

Excess of income over expenditure before finance charges 1,476 417

FINANCE CHARGES (55) (88)

Excess of income over expenditure after finance charges and before taxation 1,421 329

TAXATION (439) (146)

Excess of income over expenditure after taxation transferred to Accumulated fund 982 183

CONSOLIDATED INCOME AND EXPENDITURE ACCOUNTfor the year ended 31 December 2013

WWW.BBA.ORG.UK 3534 WWW.BBA.ORG.UK

HSBC Trust Company (UK) Ltd

ICICI Bank UK Plc

ING Bank NV

Investec Bank Plc

Jordan International Bank plc

JPMorgan Chase Bank Group

Julian Hodge Bank Ltd

Kingdom Bank Ltd

Kleinwort Benson Private Bank Ltd

Lloyds Bank Private Banking Limited

Lloyds Banking Group

Mashreqbank PSC

Metro Bank

Mitsubishi UFJ Trust and Banking

Corporation

Mizuho Bank Ltd

Mizuho International plc

Morgan Stanley Bank International Ltd

N M Rothschild & Sons Ltd

Nacional Financiera SNC

National Australia Bank Ltd

National Bank of Canada

National Bank of Egypt (UK) Ltd

National Bank of Kuwait

(International) plc

National Westminster Bank plc

Nationwide Building Society

Natixis

NED Bank

Nomura Bank International plc

Northern Bank Ltd

Punjab National Bank

Qatar National Bank SAQ

QIB (UK) Plc

R Raphael & Sons

Rabobank International (Coöperatieve

Centrale Raiffeisen-Boerenleenbank BA)

Rathbone Investment Management Ltd

RBC Europe Limited

Reliance Bank Ltd

Royal Bank of Canada

S G Hambros Bank & Trust Ltd

Sainsbury’s Bank plc

Santander UK Group

Schroder & Co Ltd

Scotiabank Europe plc

Secure Trust Bank plc

Shawbrook Bank Limited

Skandinaviska Enskilda Banken AB

Smith & Williamson Investment

Management Ltd

Société Générale

Standard Bank Plc

Standard Chartered Bank

State Bank of India

State Street Bank and Trust Company

Sumitomo Mitsui Banking Corporation

Europe Ltd

Sumitomo Mitsui Trust Bank Ltd

Svenska Handelsbanken AB (publ)

Syndicate Bank

TD Bank N.V

Tesco Personal Finance plc

The Bank of New York Mellon Group

The Bank of Nova Scotia

The Charity Bank Ltd

The Co-operative Bank plc

The Norinchukin Bank

The Northern Trust Company

The Royal Bank of Scotland Group

Triodos Bank

UBS Group

Ulster Bank Ltd

Union Bancaire Privee

Union Bank UK Plc

United National Bank Ltd

United Trust Bank Ltd

Unity Trust Bank plc

Virgin Money

VTB Capital Plc

Weatherbys Bank Ltd

Wells Fargo Bank, NA

Wesleyan Bank Ltd

Westpac Banking Corporation

Yorkshire Bank

Note: Where member banks are listed as

a group they are representative of more

than one entity.

WWW.BBA.ORG.UK 37

Financial Statement

2. DEBTORS

G) PENSION COSTS

During the period, the group contributed to a

defined benefit pension scheme. The assets

of the scheme are invested and managed

independently of the finances of the group.

Contributions are assessed in accordance with

the advice of an independent qualified actuary.

The scheme is a multi-employer scheme

and because the group is unable to identify its

share of the underlying assets and liabilities on

a consistent and reasonable basis, the pension

contributions are accounted for as if the

scheme were a defined contribution scheme.

Therefore, the pension cost for the scheme

represents contributions payable by the group

in the period. The scheme was closed to future

accrual on 30 June 2010.

The group also contributes to a nominated

stakeholder compliant pension scheme. This

was open during the period to all employees

who were not active members of the defined

benefit scheme. The pension costs for those

arrangements represent contributions payable

by the group in the period.

H) POST-RETIREMENT BENEFITS

The Association provides post-retirement health

care to certain employees in retirement. The

amounts charged to operating profit are the

current service costs and gains and losses

on settlements and curtailments. They are

included as part of staff costs. Past service

costs are recognised immediately in the income

and expenditure account if the benefits have

vested. If they have not vested immediately,

the costs are recognised over the period until

vesting occurs. The interest cost and the

expected return on assets are shown as a

net amount of other finance costs or credits.

Actuarial gains and losses are recognised

immediately in the statement of total recognised

gains and losses.

Post retirement benefit liabilities are

measured on an actuarial basis using the

projected unit method and discounted at a rate

equivalent to the current rate of return on a high

quality corporate bond of equivalent currency

and term to the scheme liabilities. The actuarial

valuations are obtained at least triennially and

are updated at each balance sheet date. The

resulting scheme asset or liability net of the

related deferred tax is presented separately

after other net assets on the face of the balance

sheet.

The company has adopted FRS17 to

account for post retirement benefits.

I) TAXATION

The payment of taxation is deferred or

accelerated because of timing differences

between the treatment of certain items for

accounting and taxation purposes. Full

provision for deferred taxation is made under

the liability method, without discounting, on

all timing differences that have arisen, but not

reversed by the balance sheet date, unless

such provision is not permitted by Financial

Reporting Standard 19.

The company has adopted FRS19 to

account for deferred tax.

J) OPERATING LEASES

Rentals on operating leases are spread over the

life of the lease on a straight line basis even if

the payment pattern is irregular due to receipt

of incentives such as rent free periods.

K) BASIS OF CONSOLIDATION

The Association accounts consolidate

the accounts of the Association and its

subsidiaries, BBA Enterprises Ltd and BBA

LIBOR Limited, drawn up to 31 December

2013. In common with companies governed

by the Companies Act, the Association has not

presented its own profit and loss account. The

net profit after taxation of the Association was

£767,000 (31 December 2012: £421,000).

L) DEFERRED INCOME AND

EXPENDITURE

Income and expenses are accounted for on an

accruals basis and only relate to the period of

the accounts. Deferred income and expenses

are carried forward.

Included in trade debtors are member subscriptions billed in advance of £4,084,000 (2012: £3,941,000). Included in prepayments and accrued income are prepaid service charges of £58,000 (2012: £58,000).

As at 31 December 2013

£’000

As at 31 December 2013

£’000

Trade debtors 5,987 5,577

Prepayments and accrued income 2,755 2,008

8,742 7,585

Included in accruals and deferred income are member subscriptions billed in advance of £3,941,000 (2011:nil ).

3. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

As at 31 December 2013

£’000

As at 31 December 2013

£’000

Trade creditors 1,191 1,387

Corporation tax payable 272 -

Accruals and deferred income 6,756 6,404

8,219 7,791

36 WWW.BBA.ORG.UK

Note31 December

2013 £’00031 December

2012 £’000

Tangible fixed assets 1(f) 545 364

CURRENT ASSETS

Stock 1(b) 12 9

Debtors 2 8,742 2,868

Cash at bank and in hand 4,957 5,153

13,711 12,747

CREDITORS: Amounts falling due within one year 3 (8,219) (7,791)

NET CURRENT ASSETS 5,492 4,956

TOTAL ASSETS LESS CURRENT LIABILITIES 6,037 5,320

PROVISIONS FOR LIABILITIES AND CHARGES

Deferred taxation (24) (6)

Dilapidation Provision (461) (436)

NET ASSETS EXCLUDING POST RETIREMENT BENEFITS LIABILITY 5,552 4,878

Post-retirement benefits liability (1,207) (1,458)

NET ASSETS 4,345 3,420

STATEMENT OF ACCUMULATED FUND

Accumulated Fund at 1 January 2012 3,420 3,666

Statement of Total Recognised Gains and Losses (STRGL) (57) (429)

Excess of income over expenditure 982 183

Accumulated fund at 31 December 2012 4,345 3,420

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (STRGL)

Actuarial Gain/( Loss) (71) (556)

Deferred Tax 14 127

(57) (429)

CONSOLIDATED BALANCE SHEETat 31 December 2013

The 2013 full financial statements are available at: www.bba.org.uk

1. ACCOUNTING POLICIESThe financial statements have been prepared

in accordance with UK GAAP. The particular

accounting policies adopted are described

below.

A) GOING CONCERN BASIS

The accounts are prepared on the basis that

the members will continue to support the

Association. The Association believes that its

level of accumulated reserves is adequate for

its continued operation.

B) STOCK

Stock is valued at the lower of cost or net

realisable value.

C) TURNOVER

Turnover consists of the invoiced value

(excluding VAT) for goods and services supplied

in the period.

D) ACCOUNTING CONVENTION

The financial statements are prepared under the

historical cost convention.

E) SUBSCRIPTIONS

In accordance with the Rules of the

Association, subscriptions payable by members

are determined to cover the budgeted level

of expenditure of the Association including

taxation.

F) DEPRECIATION

Depreciation is provided on fixed assets in

equal annual amounts over the estimated lives

of the assets. The rates of depreciation are as

follows:

Fittings: 10% per annum

Furniture: 20% per annum

Office equipment and computers: 33% per

annum

Extracts from the Notes to the Financial Statements31 December 2013

WWW.BBA.ORG.UK 39

business mentors available through Mentorsme.co.uk27,000

BBA in numbers

MAINSTREAM MEDIA MENTIONS

1074,490 delegates

BBA conferences and training courses with

7,522,301

responses to government

and regulator consultations

89

attendees to BBA committees, panels and working groups

Over 10,000

More than 240 member organisations headquartered in 50 countries

BUSINESSES SUPPORTED BY A BANK MENTOR

LEAFLETS DISTRIBUTED TO BANK CUSTOMERS

10,640Over 2,500

38 WWW.BBA.ORG.UK

4. PENSION ARRANGEMENTS The British Bankers’ Association Pension

Scheme is operated on behalf of the

Association and UK Payments Administration

Limited.

The Scheme, which is closed to the future

accrual of benefits, is a funded defined benefit

scheme and provides benefits based on final

pensionable pay and the period of pensionable

service completed up to 30 June 2010. The

contributions are determined by the Trustees of

the Scheme and the employers, after receiving

advice from the Scheme Actuary, on the basis

of triennial valuations.

The most recent triennial valuation was

carried out as at 31 March 2012 under the

Scheme Funding regulations. Details of the

valuation are shown below.

The employers have agreed to eliminate the

Scheme deficit by making contributions of

£982,000 in August 2012, February 2013

and August 2013 and then further six monthly

contributions increasing in line with RPI inflation

+0.5% pa (with a floor of 1% pa applying

cumulatively from 31 March 2012) from

February 2014 through to February 2019. The

payments are shared between the Association

and UK Payments Administration Limited in the

ratio 35:65. The employers also meet the costs

of administration, investment management and

any insurance premiums payable. The position

will be reviewed at future actuarial valuations.

The Association’s contributions are affected

by a surplus or deficit in the Scheme but the

Association is unable to identify its share of

the underlying assets and liabilities in the

Scheme on a consistent and reasonable basis.

Consequently, in accordance with Financial

Reporting Standard 17, the Association

accounts for the contributions to the Scheme

as if it were a defined contribution scheme.

Scheme liabilities £62.0m

Scheme assets £49.5m

(Deficit) (£12.5m)

Funding level 80%

Analysis of pension charges:

Year to 31 Dec 2013 £’000

Year to 31 Dec 2012 £’000

Additional pension contributions 687 345

687 345

5. DISCONTINUED OPERATIONS Responsibility for the administration of LIBOR was handed over to Intercontinental

Exchange Benchmark Administration Ltd on 31st January 2014 and from this date,

BBA LIBOR Limited discontinued its operations.

6. CONTINGENT LIABILITIES On 14 March 2013, 1 August 2013, 31 October 2013, and 14 March 2014, civil

proceedings were commenced in the United States against the BBA and various other

parties, including certain contributor banks, BBA Enterprises Limited and BBA LIBOR

Limited, by The Federal Home Loans Mortgage Corporation, the Principal Financial

Group, the Federal National Mortgage Association, and the Federal Deposit Insurance

Corporation, respectively, claiming damages in respect of the alleged manipulation and

suppression of US$ LIBOR. The amount of damages claimed in each of these four

actions is not quantified and is not quantifiable at this stage and as a result it is not

practicable to provide an estimate of any financial impact.

Warranties have been given to Intercontinental Exchange Benchmark Administration

Ltd by the BBA and BBA LIBOR Limited in relation to the sale of the business and

assets of BBA LIBOR Limited. The BBA has also given an indemnity to the Hogg

Committee under which the BBA has indemnified the Committee, HMT and the FCA in

respect of the remuneration, costs and expenses of each incurred in connection with

the sale. The total aggregate liability of the BBA and BBA LIBOR Limited to the Hogg

Committee, HMT, the FCA and Intercontinental Exchange Benchmark

Administration Ltd is limited to £1.5 million. The liability to Intercontinental Exchange

Benchmark Administration Ltd ceases on 31st January 2015 except in respect of a

claim of which the purchaser gives notice before that date. The liability to the Hogg

Committee, HMT and FCA is not time limited, but the indemnity is only in connection

with costs incurred from January 2013 until completion of the transfer of the operation

of LIBOR on 31st January 2014.

The BBA believes that its level of accumulated reserves is adequate to support its

contingent obligations in relation to the above.

www.bba.org.ukBBA

Pinners Hall, 105-108 Old Broad Street, London, EC2N 1EX

United Kingdom