HSBC boss calls for ring-fencing delay across banking sector

04 August 2014 -

Bank’s leader Douglas Flint has asked for postponement to separation of retail and investment arms across the industry until a new CMA investigation has concluded

Jermaine Haughton

HSBC has told the government to delay a planned separation of retail and investment banking across the financial sector, because the process has been interrupted by a new investigation into banks’ treatment of small and medium-sized businesses (SMEs).

According to Sky News, the British bank’s chairman Douglas Flint has argued in a letter to chancellor George Osborne that the process should be halted until the Competition and Markets Authority (CMA) has concluded a probe that is exploring ways to prevent banks from wasting billions of pounds. Flint pointed out that the inquiry – which will focus on the personal current account and SME markets – could feasibly lead to the abandonment of operations that the bank has already spent large sums of money on trying to adapt in time for the introduction of ring-fencing. Flint’s letter, it emerged, was copied to Bank of England governor Mark Carney and Parliamentary Commission on Banking Standards (PCBS) chair Andrew Tyrie.

Evidently, Flint has recognised the probe as an important factor that, depending on its outcome, could hand politicians and regulators even more ammunition for forcing through far more rigorous changes to banking operations. Last month, the CMA reported that it is not convinced that banks are working effectively for customers or SMEs. Among its criticisms of the industry, the body stated that essential parts of the UK retail-banking sector lacked effective mechanisms for competition and failed to meet the needs of either individual consumers or SMEs.

Initial survey findings suggested that there was very little movement in the market share of the largest banks, and significant barriers to entry and expansion for newer or smaller operators. Moreover, SMEs said that there was little variety or difference between the largest banks, in terms of the services they offer.

Addressing the survey’s results, CMA chief executive Alex Chisholm said: “Competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the UK economy. However, our studies have found that despite some positive developments, significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks.” Chisholm’s organisation is now going deeper into the problem to find out where the shortcomings are stemming from.

Legislation to enact the ring-fencing structure has already been passed under the Banking Reform Act – but Flint’s position as one of the most respected executives in the UK banking sector may yet win over politicians and regulators. 

The Independent Commission on Banking (ICB), which laid the groundwork for the Act, argued that – despite the policy’s immediate disruptive effects – ring-fencing banking divisions is the most effective way of preventing taxpayers from having to step in and rescue banks during a future financial crisis. Perhaps it is that very disruption that has played a part in Flint dramatically changing his tune from the stance he took in 2012, when he called for ring-fencing to be introduced as soon as possible.

Speaking at a PCBS session that year, Flint and Barclays boss Antony Jenkins asked politicians to enforce banking reforms with utmost haste. “The sooner we can get it done,” said Flint, “the better, but there is a long lead time. If we do not have the detailed rules until 2015, then it is unlikely it will be much before 2019. The sooner we can get final rules, the sooner we can begin to implement them. Then we will go as fast as we can.”

So, is the banking industry getting cold feet?

Flint’s letter has raised the prospect that executives are becoming ever more frightened by the increasing reality of expensive and time-consuming reforms – changes that are likely to dent bottom lines and plunge professionals into tangled nests of red tape.