This month in summary
This month in summary:
Focus on Northern Ireland
The FCA has published its review of the retail banking sector, with a view to understanding how banks generate their revenue and profits, and what action to take going forward.
The review revealed that 10% of customers generate between one-third and one-half of all bank’s profits and the ‘big six’ lenders (RBS, Lloyds, Barclays, HSBC, Santander and Nationwide) hold 87.3% of all current accounts, up from 78.8% in 2008.
The FCA will now embark on a second stage review to assess the impact of branch closures, ‘Open Banking’ and the sharp increase in online-banking to understand whether this will reverse the current trend of customers being reluctant to shop around for a better deal or move their business to lesser known challenger banks. The review may also lead to pro-customer changes such as reductions in overdraft fees or measures to help savers, the latter of which is seen as particularly important in the industry.
Recent Figures published by UK Finance - a year on from the start of the national roll out - show that 197 arrests have been made and nearly £25 million of fraud has been prevented as a result of the Banking Protocol.
UK Finance introduced the new fraud protection scheme last year. The scheme was piloted in London in October 2016 and was rolled out across the UK from May 2017 onwards.
Under this scheme, bank and building society staff are helping to prevent their customers from falling victim to fraud and are working with local police to help catch the perpetrators. Most major banks/building societies, and all of the UK’s 45 police forces, are now part of the scheme.
Banks and building societies are often the first line of defence for customers who are about to become victims of fraud. The scheme aims to train branch staff to detect when a request is unusual or suspicious. When staff have reason to suspect fraudulent activity, they can invoke the protocol and receive a rapid response from the local police force.
As well as preventing fraud from taking place, the protocol ensures that potential victims receive a consistent response nation-wide and that advice and support is provided to help prevent individuals from becoming victims of fraud in the future.
This collaborative effort by financial institutions and the police is proving increasingly successful and is a positive step forward in the fight against fraud.
Although credit card borrowing is becoming more expensive, more customers are choosing to pay by plastic. This could be down to the fact that for some customers this is the only finance available to them. The average interest rate on UK credit cards sits at 23.1% and experts are predicting that interest rates will rise in the near future causing concerns for consumers in debt.
The Bank of England has also raised concerns over 0% interest credit card offers. It has warned of a vulnerability to sudden losses if customers do not stay on following the end of the introductory period or borrow less than expected by providers. To mitigate these risks, it has been suggested that financial institutions should hold additional capital.
The risks with 0% interest offers, according to the PRA, is that banks are relying upon customer retention rates on expiry of the offer period and customer borrowing levels being high, but if these assumptions are too optimistic, this could leave banks with weakened balance sheets. With this being said, financial institutions with 0% interest rates have seen good performances with customers that have come off the promotional period.
In order to combat the problem of financially vulnerable customers being trapped by high interest rates on credit cards (which might be their only source of finance), the FCA has proposed new rules to tackle persistent credit card debt.
The European Banking Authority (EBA) has warned that planning by UK lenders for a hard Brexit is “inadequate” and too slow, as they rely upon a post-Brexit transition period agreed by political leaders. The EBA has commented that the transitional period is a political agreement only and does not provide any legal certainty on the issue of contract continuity. It believes that time is running out for banks to make a decision as to whether they would like ongoing market access to the UK or the rest of the EU. If banks are to ensure that there is no disruption to EU customers after March 2019, they must look to apply for the relevant EU licences for euro zone hubs soon. They cannot take a 'wait and see' approach in order to save costs.
Both the BoE and the UK Financial Conduct Authority are of the view that UK and EU legislation is required to deal with the legal issues over financial contracts. However, EU authorities have not reciprocated this view and the EBA has warned that financial institutions shouldn't rely on public sector solutions being proposed/agreed in time or at all.
The EBA has also cautioned that capital charges could be higher once the UK leaves the EU which may place pressure on lenders to move more operations out of Britain before March 2019.
The Supreme Court has held that a bank was not liable to a casino (Playboy Club) for a negligent credit reference it supplied for a customer to Playboy Club’s agent.
In Banca Nazionale del Lavoro SPA v Playboy Club  UKSC 43, Playboy Club sought a reference from the bank (via an agent) for a gambler before granting him a credit facility. Playboy Club obtained the reference via a third party. The reference turned out to be negligent (the gambler was not even a customer of the bank at the time it was given).
However, the bank was not aware that the reference would be passed on to Playboy Club. No assumption of responsibility was assumed to them and so no duty of care arose.
This is despite Lord Mance describing the bank as 'very lucky' to avoid liability. Read our analysis here.
Lenders may be interested in our recent update on a court decision on encroachment of knotweed from neighbouring land.
At first instance the court was shown the lending policies of Nationwide and Barclays, both of which required specialist reports and insurance-backed treatment if knotweed was discovered prior to lending. The court believed that this lender caution affected the value of the land, entitling the landowners to compensation.
The Court of Appeal reconsidered the matter and upheld the landowners' claim for compensation but, rather than relying on lender caution affecting value, held that the presence of knotweed would affect the landowners' use and enjoyment of land.
In relation to knotweed, lenders will want to ensure that:
Last year a consultation was held regarding duty solicitor schemes that provide help to customers at possession hearings. The Government believed that consolidating and reducing the number of schemes from 113 to 47 larger schemes would create efficiencies and make the schemes more sustainable. 80% of the responders to the consultation disagreed but, despite this, the Government started the tendering process for the consolidated advice schemes in October 2017.
The Law Centre Network, a charity which provides advice to disadvantaged individuals and which is a provider for many of the duty solicitor schemes, brought court proceedings to challenge the re-tendering process. One concern cited was that consolidation may affect the ability of the Law Centres Network to provide follow-up advice and assistance.
The Court decided that there was no evidence that consolidation would create a more sustainable system. As a result the Court ordered that the contracts for the larger schemes be quashed. The Government is considering its approach and has said it will publish information as to what happens next as soon as possible. It is not clear whether, in the meantime, there will be any disruption in the availability of advice at court hearings. It is important that lenders continue to signpost their customers who are facing possession hearings to sources of independent advice and assistance from other providers, such as Shelter or the Citizens Advice Bureau.
The Law Commission has put forward a report to Parliament seeking to update the Land Registration Act 2002.
As part of these proposals, it identifies the growing issue of property title fraud and steps to be taken to reduce this risk. In the last 10 years, the Land Registry has paid out £58 million in indemnity claims in relation to fraud.
Seeking to reduce the risk of this type of fraud, the Law Commission recommends introducing a statutory duty on solicitors to HM Land Registry to carry out identity checks.
The Law Commission has decided not to introduce a new statutory duty on lenders or to reduce lenders' rights to claim an indemnity. This is a sensible proposal as it should assist in reducing the risk of this fraud succeeding.
The head of the PRA has written to banks warning that cryptocurrencies are subject to volatile prices and raising concerns about vulnerability to fraud, manipulation, money laundering and terrorist financing. In the last seven months, bitcoin value has fallen by 66% and has been subject to dramatic changes in value over short periods.
The regulator considers that cryptocurrencies represent significant reputational risk and has reminded lenders of their obligations to act in a responsible and prudent fashion. It also recommends that banks ensure their senior management teams fully understand the risks associated with cryptocurrencies and the strategies required to manage them. Exposure to these risks should be reported to regulators so that management can take place in a controlled and transparent manner.
The PRA has also confirmed on-going discussions with regulators in jurisdictions around the world, with a view to establishing the best way to manage cryptocurrency risk consistently across borders.
Over 800 Northern Ireland properties were purchased through Co-Ownership Housing ("Co-Ownership") in the 2017/2018 financial year which represents a rise of around 15% on the previous year.
Co-Ownership believes that the increase may be as a result of those living in rented properties who are struggling to save for a deposit due partly to them having to make high rental payments.
Co-Ownership allows potential purchasers to buy a share in their chosen property in Northern Ireland with a maximum price of £165,000.00. Co-Ownership contributes an agreed percentage (between 10%-50%) and the purchaser obtains a mortgage for the remainder. Some lenders will not require a deposit from the purchaser as they may be satisfied to accept Co-Ownership's contribution for this purpose. The purchaser will pay rent to Co-Ownership whilst repaying their mortgage. Over the course of the mortgage, the purchaser can buy shares in the property from Co-Ownership until they attain full ownership.
Co-Ownership hopes to increase its assistance in the 2018/2019 financial year by helping 900 families purchase homes.
Co-Ownership has also recently introduced a "Rent to Own" scheme in which the purchaser chooses a new build property with a maximum price of £165,000.00 and rents it for three years. After three years, Co-Ownership provides the purchaser with a 25% rebate on the rent paid, together with a refund of their down-payment of £2,500.00 which can then be put towards a deposit to purchase the property. Co-Ownership reports that 31 households are currently participating in this pilot scheme and it is hoped that a further 40 can be supported in the 2018/2019 financial year.
Sam McCollumThis publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.