The decision on bank charges for unauthorised overdrafts is, I feel, I victory for common sense. We were about to face charges on our current accounts to subsidise payouts – think we should mainly be breathing sighs of relief! After all, why should the prudent people who stay in credit or within their overdraft limits, subsidise those who borrow money without permission? It’s not beyond understanding surely? If you are concerned about the unnecessary hardship this might cause, then help your friends who are struggling – if we were all nicer to each other, less of us would be in the type of penury that leads to unauthorised overdrafts. That would leave only the feckless and then we wouldn’t have a problem would we?

The property sector has to recover because we are short of houses. Interestingly also, the Student Accommodation sector should be ready to produce rental and capital growth now. This is likely as student numbers increase when jobs are in short supply.  UCAS has reported that accepted applications overall were 12% higher than for the 2008/2009 year, with mature student applications increased by 20%), this includes students from abroad and the vast majority of them need new accomodation. Can’t be bothered to do this? I am sure there is a fund out there capitalising on these prospects as I write….

So, where there is muck (student bedrooms) there is brass!

The fact that banks are too big to fail has created a problem that is too big to ignore, said Governor of the Bank of England Mervyn King last night in Edinburgh. He called the scale of the UK bank bailout “breathtaking” at nearly one trillion pounds or close to two thirds of the annual output of the entire UK economy. “To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform,” he said. “It is hard to see how the existence of institutions that are “too important to fail” is consistent with their being in the private sector. Encouraging banks to take risks that result in large dividend and remuneration payouts when things go well, and losses for taxpayers when they don’t, distorts the allocation of resources and management of risk,” said King. King, said: “Why were banks willing to take risks that proved so damaging both to themselves and the rest of the economy?” He added: “Banks and their creditors knew that if they were sufficiently important to the economy or the rest of the financial system, and things went wrong, the government would always stand behind them. And they were right.” He said the way back will be two-pronged and meant first, rebalancing the economy and secondly, serious structural reform of the way banks are run and regulated. Failure to do this, he said, would leave the way open for another worse banking crisis than the one we have seen. King explored the reform paths open, including asking banks to retain higher levels of capital to buffer themselves against risk, but said the question of how much is sufficient remains unanswered. Asking banks to separate their riskier trading arm from retail banking arms, the side offering personal and commercial banking to consumers and business, was another option being explored across the globe. King said: “There are those who claim such proposals are impractical. It is hard to see why. He continued: “What does seem impractical, however, are the current arrangements.” Increased scrutiny of the banks through regulation was another option being explored, he said. He said banks must not try to earn their way out of current government support by resuming the very activities that got them into trouble in the first place. King said: “Out of what must have appeared to many of you to be a clear blue sky of economic stability, arose a financial firestorm that wreaked substantial damage to the real economy and we have not yet seen its full consequences. The case for market discipline is no less compelling for banking than for other industries.” He concluded: “The past two years have shown how dangerous it is to let bankers play with fire. This is not a question of blame – as Sir Walter Scott rightly said, the majority in the industry are “good men and women. It is a matter of the incentives they face. To protect our genuinely successful financial centres, reform of banking is essential.” The British Banker’s Association (BBA) chief executive, Angela Knight said: “The Governor has long held this view. We believe the key issue is not one of breaking up banks but of financing the economy.” “UK banks are supportive of reform and have already acted to address the issues which the recent global financial problems exposed. The economic recovery, jobs and paying back the tax payers are best served by the tripartite authorities working together. We are committed to getting on with effective reform: many of the key regulatory changes have in fact already been implemented. The industry is at the table for change and is changing. We are committed to ensuring that this crisis never happens again.”

Just as the FSA expect firms to do their own due diligence on providers, they have now written to CEOs to confirm that although they vet ‘approved persons’ the regulated firms must do this too! Talk about a duplication of effort… also, with their statutory powers, how must easier is it for the FSA to do the diligence. The thorny matter of references makes it really hard for firms to investigate new members of staff, what is needed is a neutral party to make enquiries. The FSA could actually earn their fees by allowing their vetting to replace firms own. Now that would be useful. It would also be useful if FSA authorisation and regulation gave some guarantee of ’soundness’. It’s classic hot potato stuff, nobody wants to own the liabilities do they?

November should mark a brighter dawn for all of us with a bank account. That it will probably do little to curb the banks’ bad behaviour will be yet another black mark on the stained copybook of the Financial Services Authority (FSA). The first of the month is when the chief City watchdog will take over the policing of retail banking. The Banking Code, the cosy system of self-regulation that has allowed poor service and bad practice to flourish, will be consigned to the dustbin. Few will mourn its passing, as tighter regulation is long overdue. But what is the point of replacing a broken system with a replacement that looks fundamentally flawed?

When the FSA announced that it was taking over banking regulation, it promised greater transparency for consumers. A noble goal, but one that, on November 1, it will singularly fail to achieve. There are few things to commend the Banking Code but, in its favour, it is clear and easy to understand. At 37 pages of large print, you can just about absorb it in a single sitting. Under the new regime, the code will be replaced with three separate directives. I can’t be the only one to think that one into three sounds like a recipe for befuddlement. The FSA will oversee two of the strands — the Banking: Conduct of Business Sourcebook and the Payment Services Directive. These broadly cover how banks deal with customers with cash deposits. Overdrafts, loans and credit cards will continue to be policed by the Banking Code Standards Board in its new guise of the Lending Standards Board. If you are keen to acquaint yourself with the rules, prepare for more than 100 pages of the finest legalese. The FSA has promised to publish reader-friendly guides before the November deadline, but this week was unable to confirm when. Why do we need three sets of rules in any case? This cobbled-together compromise results from a decades-old division between the regulation of banking and credit that should have been binned long ago. It is a shame, because the new rules contain some good ideas.

In fraud cases banks will have to prove that the customer was at fault. Currently the onus is on customers to prove that they did nothing wrong. Another positive move will require banks to give most customers two months’ notice of any interest rate changes. The FSA will also be able to fine banks and building societies that fail to treat customers fairly — although that has not proved a deterrent to bad behaviour in the past. It may stop the big institutional abuses, but many more cases will continue to slip through the net. All in all, this looks like a missed opportunity to swing regulation decisively in the customer’s favour.

How do I have time… well, at least I can type up my blog whilst listening to some CPD:

http://www.positivegroundradio.com/mt/index.php

Have a listen, it isn’t quite as funny as the Janet and John tapes of Terry Wogan, children in need fame, we edited out our giggling…

This will help – get CPD via audio whilst doing something else! You will be able to cook, clean and iron and get CPD at the same time: Money Talks is a web radio show interviewing finanical services experts in different areas about topical issues. Click here and listen to the show: http://www.positivegroundradio.com/mt/index.php

Brokers & adviser firms: if you could deal with CPD, T&C , improve the performance of your staff for free would you? Insurance and financial services apprenticeships can do just that! Minimal time expended, lots of FSA addressed and definite improvements in staff knowledge and performance. This is TCF too! 

To find out more e-mail Karen@thegiconsutlant.com

The FSA has had to tap into £200m worth of credit facilities with LloydsTSB and HSBC to cover a funding deficit for 2008/09. This is the first time the FSA has made use of the £100m credit agreement it has with LloydsTSB which was set up before the credit crunch. The regulator has also secured an extra line of credit for £100m from HSBC. Reports suggest that the FSA has already agreed a further loan from Lloyds to finance its expected deficit for the forthcoming year.

If the ‘who is paying for this’ question is not scary enough, what about the conflict of interest here? The regulator is dependent upon loans from those it is regulating. Humm!

With profits funds such as endowments are now subject to new rules, belatedly. The long and short of it is that firms cannot now pay compensation for mis-selling etc. out of the fund. The obvious inequity of doing this or even thinking of doing it makes me wonder why, with all the rules and regulations, it could possibly have been allowed!

Many endowments were on track right up to the last year or two, then suddenly they get a ‘red light’ at a time when it is virtually impossible to do anything about it unless you have a large wedge of good money to go after the bad!

This is far more scandalous than the origional mis-selling, which was  just a part of the times, a way of getting a mortgage that you would not otherwise have been able to afford. Endowments were practically a fashion.

Why didn’t the FSA say that firms should focus on getting their ‘with profits’ profitable instead of effectively ensuring that no new money went in and as many as possible got out?

Grrrrr….