Banking reform bill could be approved before Christmas

Bill designed to prevent further banking scandals and misconduct enters Lords for what could be the last time

Andrew Tyrie's work is nearly done. The Conservative politician, who has been a key figure in attempts to clean up the banking system, stood up in the Commons last week to remind fellow MPs of the tasks that had been set for the parliamentary commission on banking standards, which he had chaired.

The first was to report on professional standards in the banking industry in the wake of the Libor rigging crisis, and the second was to outline the lessons that could be learned for the government, while making recommendations for legislative change.

Much of that work may be concluded this week, with the 200-page banking reform bill entering the Lords on Monday for what could be the last time. With just one amendment to the bill still proving contentious, there is an expectation the work will be completed before the Christmas recess.

The legislation includes a package of measures intended to force senior bankers to take responsibility when things go wrong, allowing bankers to be charged with reckless misconduct if their institutions go bust, and forcing them to erect an "electrified" ringfence between their high-street and investment banking operations.

Last week's debate in the Commons coincided with a timely reminder of the scandals that had first set Tyrie and his fellow commissioners – made up of lords and MPs including the former chancellor Lord Lawson and the Archbishop of Canterbury, Justin Welby – upon their task. Lloyds Banking Group was fined a record £28m for a bonus culture that saw staff mis-sell financial products, while Royal Bank of Scotland, which was also bailed out, was fined £60m for breaching US sanctions rules.

"The banks have discovered that the scale of the damage done by the revelations and the scale of the fines that are now being imposed are systemic in implication for their institutions and that has shaken them up a lot," Tyrie told MPs last week. "But I do think the culture at the top of our banks is changing. The task of our legislation is to entrench that change for a generation. We have had this crisis. The horse has bolted. What we have got to do now is devise a stable door that can keep the next horse in."

Stuart McWilliam, a campaigner for Global Witness, said changes to the rules facing top bankers were a sea change because the City regulator, the Financial Conduct Authority, would be better able to hold banks to account. "It gives the FCA the power to hold the most senior bankers personally responsible for failures at their banks – a pretty good incentive for changing bankers' behaviour for the better," he said.

Alan Bainbridge, a lawyer at Norton Rose Fulbright,described the changes to how top bankers are authorised to work in the City as groundbreaking.

The existing approved persons regime will be changed with a new system aimed at top bankers taking responsibility for their actions and a new licensing regime. There is scepticism about whether an offence of reckless misconduct, under which bankers can be tried if their institutions collapse, can be used in practice.

But Conservative MP Mark Garnier, who sits on the Treasury select committee and was on the parliamentary commission on banking standards, likened it to a "nuclear deterrent" in the Commons last week.

One of the most crucial measures is the "electrification" of the ringfence between high street and investment banks. Bainbridge said this was "tantamount" to the Glass-Steagall rules imposed after the Great Depression in the US in the 1930s and only dismantled 15 years ago.

Lord Sharkey, the Liberal Democrat peer whose amendment on capping payday loan rates forced the government to act to restrict high rates of interest, said the electrification was the "key action" from the legislation.

"Parliament will need to keep an eye on how this really works. Will Chinese walls really be sufficient? Will the culture of investment banks continue to dominate the management thinking of retail banks held in the same groups," said Sharkey.

The Policy Exchange thinktank is warning of rising costs to customers from the ringfence, which does not need to be erected until 2019. Omar Ali, UK head of banking and capital markets at accountancy group EY, said the legislation meant that the "fabric of banking is changing" and the UK will have the most stringent set of rules anywhere in the world. Banks could end up becoming too risk averse, which could result in restricted lending to the real economy, he warned.

Even as royal assent comes closer, questions are still being asked about whether legislation can change the culture of banking. Garnier told MPs last week that a new industry body monitoring banking standards and the emphasis on top bankers taking responsibility was significant.

"An organisation such as HSBC has 270,000 people working for it, so no matter how sincere the integrity of the individual at the top, we must work out a mechanism to drive integrity throughout the system. Personal accountability for the senior management of the banks is crucial in that.

"I keep coming back to this point: if [HSBC's chairman] Douglas Flint is waking up at 3 o'clock in the morning worrying that somebody in Kidderminster is getting something wrong, that is a good thing."

Sharkey is among those who think that increased competition on the high street is also needed. The big four – Lloyds, RBS, Barclays and HSBC – control over 75% of the market.

"The banking reform bill addresses the regulatory issues, as it should. Banking culture is less easy to fix. There are some who believe that there is still no real competition in our banking system," Sharkey said. "What [will] keep them honest is competition for customers."

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Bank of England holds off action on house prices despite bubble fears

FPC will 'closely monitor' property market, while FCA will assess vulnerability of hedge funds to rate changes

The Bank of England has stepped back from taking immediate action to cool the housing market but is monitoring property values closely afterhouse prices returned to their pre-crisis levels.

The Bank's financial policy committee, which meets quarterly to assess risks to the financial system, said it is also reviewing work by the Treasury on preventing the risk of cyber-attacks to the banking industry and stepping up its assessment of the vulnerability of hedge funds to sudden changes in interest rates.

At a time when George Osborne's housing market schemes are raising concerns about sharp rises in house prices – particularly in London – the FPC said it would "closely monitor developments in the housing market and banks' underwriting standards".

"The committee would be vigilant to potential emerging vulnerabilities," it said in a statement released following its meeting on 18 September. The committee, which is chaired by Bank of England governor Mark Carney, said if it did decide to deploy any of its powers to cool the market – such as forcing banks to hold more capital – it would do so gradually.

But while it is not moving immediately to cool the housing market, the FPC has been assessing the impact that sharp upward moves in long-term interest rates could have on households and major financial institutions.

While it concluded that there was no immediate threat to banks and insurance companies it wants more information about the impact on hedge funds, which borrow money to take bets on stock markets, currencies and commodities.

The City regulator, the Financial Conduct Authority, will now assess the "potential amplification" through the financial system of interest rate changes – or perceptions of interest rate changes that may be caused by central bank policies on reducing the stimulus currently being pumped into markets to keep interest rates low.

"The levels of leverage within, and therefore the vulnerability of, hedge funds needed to be looked at more closely," the FPC said.

The FPC's comments on the housing market will be closely watched by the market as the chancellor has insisted he is not creating a housing bubble – even though property prices have broken through their pre-crisis peak. The average price of a UK house has passed the peak five years ago of £245,000 but Osborne has said the FPC will have powers to stop any over-inflation in house prices.

The FPC noted that while mortgage approvals in July were 30% higher than a year earlier and average house prices in August were 5% higher, activity in the housing market was nevertheless below historic averages. "Households' debt servicing costs were low and the ratio of house prices to earnings was at its level of a decade ago," the FPC said.

The committee said it could force banks to change their lending criteria, impose additional capital requirements and make recommendations to the regulators on tightening affordability tests for borrowers.

Martin Beck, UK economist at Capital Economics, said it was reasonable for the FPC to hold back on intervention even though house prices compared with earnings are still above the level of the 1980s housing boom. "This growing unaffordability should act as a natural check on house price growth. There is no suggestion that banks are about to return to the very loose lending conditions of the mid-2000s, with 110% mortgages and self-certified loans. So the workings of the market may stay the hand of the FPC in having to intervene."

Article Source : http://www.guardian.co.uk

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Icap fined £55m as ex-staff charged over Libor rigging

Former Tory treasurer Michael Spencer runs into political row as firm he founded given stiff penalty and ex-employees charged

The City dealer run by former Conservative party treasurer Michael Spencer has been fined £55m by regulators and three of its former employees charged with criminal offences in the United States as part of the global investigation into Libor rigging.

Spencer said he regretted the actions of the three – one of whom was known to colleagues as "Lord Libor". Regulators hit the Icap money broking firm he runs with huge fines and released pages of embarrassing email exchanges showing offers of a curry night out, a Ferrari and "bubbly on its way" in return for moving the yen Libor rate.

One of the City's highest profile figures, Spencer was drawn into a political row as the Labour MP John Mann called for his donations to the Conservative party to be handed to the armed forces charities where Libor fines are sent.

Labour's vice-chairman Michael Dugher also called for the money to be returned. "David Cameron fought tooth and nail to avoid launching a proper inquiry into the scandal of rigging interest rates, the very scandal which has now engulfed one of his big donors – a man who has given him nearly £5m," Dugher said. "It just goes to show what we already knew. In the end it's a privileged few whose voices he hears, and whose interests he acts in."

Each of the one-time employees – Darrell Read, who lives in New Zealand, Daniel Wilkinson and "Lord Libor", Colin Goodman – face 30 years in jail for each of the three charges levelled against them by the US department of justice (DoJ). They have been charged with conspiracy to commit wire fraud and two counts of wire fraud. In the US a criminal complaint is not evidence and a defendant is presumed innocent until convicted.

Spencer's tenure as treasurer of the Conservative party overlapped with the period of the fines – between July 2006 and December 2010 – but he claimed that this was not relevant. Even if he had not been holding the senior political role Spencer said: "I can't believe I'd have been able to pick it up."

A Tory official said the demands to repay Spencer's donations were "nonsense".

Spencer has attended a series of dinners in Downing Street and close links with the party since leaving his post as co-treasurer. Last year he was described as a personal friend of the prime minister by cabinet minister Francis Maude.

Spencer described the 10 former and current employees as "rotten apples" but acknowledged the desk on which they worked had never been audited during the relevant four-year period.

Announcing the latest development in the Libor scandal, which erupted in June 2012 when Barclays was fined £290m, Scott Hammond, deputy assistant attorney general for the antitrust division's criminal enforcement programme, said: "In exchange for bigger bonus checks, the three defendants undermined financial markets around the world by compromising the integrity of globally used interest rate benchmarks."

Icap, in which Spencer and his family own a 16% stake worth £400m, will pay £14m to the Financial Conduct Authority. It is the FCA's fourth fine for Libor rigging and first against a non-bank. The remainder of the £55m will go the US authorities.

According to the FCA one of the brokers received £5,000 every quarter in "corrupt bonus payments".

The regulators link the activities to those of UBS, the Swiss bank which has so far faced the largest Libor fine of £940m. The DoJ's complaint names former UBS trader Tom Hayes as a "co-conspirator" in its charges against former Icap employees along with "others known and unknown".

According to the FCA, which does not name individuals, there were 300 written requests to change Libor rates to brokers at Icap, and more orally which were harder to chart.

Libor – the London interbank offered – is a benchmark rate based on submissions by major banks about the price they think rivals would charge them to borrow money over different periods of time. It in turn is used a benchmark against which £300tn of financial contracts around the world are set.

According to the DoJ, Goodman distributed a daily email to individuals outside of Icap, including derivatives traders at several large banks as well as those responsible for providing Libor submissions to the British Bankers' Association. The BBA is now being stripped of its involvement in the rate.

Goodman's email contained what were termed his "SUGGESTED LIBORS", purported predictions of where yen Libor ultimately would fix each day across eight specified borrowing periods. Read and Wilkinson, along with Goodman himself, often referred to Goodman as "Lord Libor"," the DoJ said.

Spencer did not rule out taking a bonus for this year but said top executive payouts would be affected. "None of the three individuals at the centre of the activity remains with the firm. Others are either no longer with the company or are being disciplined," he added. "We deeply regret and strongly condemn the inexcusable actions of the brokers who sought to assist certain bank traders in their efforts to manipulate yen Libor. Their conduct contravenes all that Icap stands for."

'Will buy you a Ferrari if you move 3 month up' 

Desk head: "Lord Baliff, I would suggest a lunch over golden week. Monday or Tuesday, if you are around ... As for kickbacks etc, we can discuss that at lunch and I will speak to [senior yen trader] about it next time he comes up for a chat."

Trader: "OK with an annual champagne shipment, a few p*** ups … and a small bonus every now and then."

Broker: "How about some form of performance bonus per quarter from your b bonus [sic] pool to me for the Libor service …"

Derivatives broker: "Morning Lad, on the scrounge again, if possible keep 3 [months] the same and get 6 [months] as high as you can. My guy … will want it has high possible. Waiting for my credit card to get returned to me from a drunken night out bowling but will be supplying you with copious amounts of curry on it's imminent return.

Derivatives broker: "Make 6m go lower! They r going up. [Trader] will buy you a Ferrari next year you move 3 [month] up and no change 6 [month]"

Derivatives broker: "brooliant!! they are making fortunes with these high fixings!!! :-)

Trader told broker that he "need[ed] high at the start of Oct". Broker replied: "Gotcha … just give me a 'wish list' at the start of each day."

Article Source : http://www.guardian.co.uk

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Barclays branch chief vows culture change at scandal-hit bank

Ashok Vaswani pledges action to cut customer complaints, including PPI issues which have cost Barclays £4bn

Humility is not a word often associated with bankers but the head o f Barclays' high-street branch network insists that that is what guides him.

Ashok Vaswani, who has a key role in a new management team charged with altering the culture at the scandal-hit bank, says: "If you are not humble you cannot learn. It is a core value that drives me a lot."

Sitting in a meeting room above a busy branch on Borough high street, London, the 52-year-old is keen to get across the message that he wants to put customers at the heart of everything done by himself and his 30,000 branch staff across the UK.

He describes the data recording complaints against the bank as horrendous. There were 381,740 complaints in the first six months of this year. He insists, though, he is cutting out problems such as requirements for customers to send faxes and inform the bank of their travel plans to be able to use a credit card abroad.

In the last six months of 2012 Barclays was the most complained about bank in Britain – by some measures with more than 400,000 complaints.

"I want to put the company out there to say we are totally committed to driving these complaints down," Vaswani said.

Referring to Barclays' slogan promoting itself as the "go to" bank – a line devised by his boss, Antony Jenkins, after he was promoted to chief executive in the wake of the Libor scandal, – Vaswani said: "What is 'go to'? Antony would say it was an emotional connectiveness to the brand. You can't build emotional connectiveness with a brand if you've got so many complaints."

Vaswani joined Barclays in 2010. He knew Jenkins from their work at the vast US banking empire of Citigroup

Ashok Vaswani faces creating a better service for bank users, after almost 400,000 customer complaints over six monthsHe arrived in the Middle East with just $14 in his pocket and met the India-born daughter of a client whom he later married. Their daughter was born in Dubai.

From there he went to Turkey, Brussels, New York and Singapore, then back to New York. No sooner had he arrived in London than he was running Barclays' African operations. He gained his current role, that of running 1,577 UK branches, and 797 branches elsewhere in Europe, by stepping into Jenkins' shoes when he moved up from retail chief to the top job.

He got a Singaporean passport after falling in love with the island city state while running Citi's Asian operations, a career route that left him returning to New York 15 times a year to visit his wife and daughter who preferred to stay in the US.

During the banking crisis, when Citi incurred heavy losses, he was working in private equity with former colleagues from Citi before returning to banking again with Barclays.

He says he now intends to publish Barclays' complaints data every three months, twice as often as required by the Financial Conduct Authority, and to outline the key causes of complaints.

Payment protection insurance has been a leading cause of customer anger, and has cost Barclays £4bn. The bank had 381,740 complaints in the first six months of the year. Vaswani would rather focus on the numbers without PPI, where complaints were down 46% to 91,215 in the first six months of the year.

Vaswani is keen on digital banking, technology and social media. He has ruled out job cuts.

As a member of the executive committee he finds his pay does not need to be disclosed. It seems likely he receives about £2m a year. He admits that, as "for any normal person, money is important" but what motivates him, he says, is his desire to improve the banking culture.

In a lecture this year to the Oxford Centre for Hindu Studies he defined culture as being about "how you behave when no one else is looking". It a definition that was used by Bob Diamond, the former Barclays CEO ousted during the Libor scandal, and Vaswani admitted that culture could be hard to instil across a large workforce.

"This is about looking at the end of the assignment, looking at myself in the mirror and saying I was a trustee for a great company and a great franchise and I did everything humanly possible to make it a better franchise [for the successor]," he says.

An only child, his mother, an Indian government official, was his main motivator after his father, a businessman, died when he was six. If his father had lived longer his career path could have been different, he suggests. But it was his mother, he says, who encouraged humility, and it was the opening of his mind to learning that "was the huge thing" she gave him.

Article Source : http://www.guardian.co.uk

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