Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum submitted by The Banking Code Standards Board


  1.  The Banking Code Standards Board (BCSB) was established in October 1999 as the self-regulatory body for banking services to personal and small business customers. It is funded by the industry but has independent governance. It covers almost all retail banks and building societies in the UK.

  2.  The Banking Code for individual customers and the Business Banking Code are sponsored by the industry trade associations. The aim is to ensure that customers get a fair deal from banks and building societies.

  3.  The BCSB monitors and enforces the codes in a number of ways and disciplinary action has recently been taken against various subscribers.

  4.  The Banking Code and the BCSB were recently endorsed by the Treasury appointed Review Group under Dr DeAnne Julius. Most of their recommendations have now been implemented.

  5.  A review of the content of the current Codes, conducted by a distinguished independent reviewer, is currently under way.

  6.  The recommendations in the Treasury Committee's fifth report "Banking and the Consumer" have been addressed.

  7.  The recent Competition Commission report on the supply of banking services to small businesses is being considered. The BCSB hopes that most of the recommendations can be incorporated into the Business Banking Code.


  1.1  The first Code of Banking Practice for personal customers was introduced in 1991. The current Banking Code is the fifth version. It covers current accounts, savings, personal loans, credit cards and ATMs. A new Business Banking Code for small business customers (with a turnover of up to £1 million) was introduced on 31 March 2002. Both Codes are sponsored by the industry trade associations: the British Bankers' Association and the Association for Payment Clearing Services, plus the Building Societies Association in the case of the Personal Code. The aim is to ensure that personal customers get a fair deal from all banks and building societies, which subscribe to the codes. As voluntary codes, they allow competition and market forces to work to encourage higher standards for the benefit of customers. Ten Key Commitments set out the overarching standards which banks and building societies are required to apply.

  1.2  The Banking Code Standards Board was formed in October 1999 to provide more effective monitoring and enforcement of the Code. The BCSB is funded by the industry with subscriptions ranging from £750 to £75,000. Subscribers to the Business Banking Code pay from £250 to £20,000 (all figures plus VAT). There are 120 subscribers to the Banking Code and 39 to the Business Banking Code. Subscription is voluntary, though considerable pressure is applied to ensure that financial institutions join and the vast majority of the industry is now covered. The principle non-subscribers are listed in Annex 1—a number of them are likely to join in the next year.

  1.3  The BCSB has nine non-executive Directors (for details, see Annex 2)[2][3]: three come from the trade associations and represent the industry; five are public interest Directors, selected after public advertising and there is a non-executive Chairman. The Chief Executive is also a Director. Thus there is a clear majority of independent Directors.

  1.4  The BCSB has a contractual relationship with subscribers governed by an Agreement, Rules, Compliance Policy, Disciplinary Procedure and Review Committee Procedure.

  1.5  The BCSB believes it adheres to the recommendations of the OFT, the Better Regulation Task Force and the National Consumer Council in respect of best practice for self-regulation.

  1.6  The BCSB works closely with other regulators and with the Financial Ombudsman Service.


  2.1  The BCSB monitors compliance with the Code by means of:

    —  Monitoring visits. Initially this activity was contracted out to PricewaterhouseCoopers, but it is now conducted by the BCSB's own staff. Visits involve discussions with senior management, a line by-line review of Code compliance, a review of customer documentation and visits to branches and call centres.

    —  Mystery Shopping. Assessments, carried out by NOP and the BCSB's own staff, have included checks on the information given to new customers and the ease with which accounts can be transferred from one bank or building society to another. The results have been published.

    —  Annual Statements of Compliance. Chief Executives of subscribing firms are required to sign a 19 page self-certification statement each year.

    —  Monitoring of the media.

    —  Customer contact. The BCSB's help line receives around 150 calls per month.

  2.2  Disciplinary action has been taken in a number of cases over the past two years. The principle areas have been in superseded accounts, customers in financial difficulties and customer self-selection of PINs. Some of these cases have been settled, to the benefit of affected customers, by negotiation. Others have involved sanctions including public censure. Our annual report and website——detail actions taken in respect of Bristol & West plc, Chelsea Building Society, Alliance & Leicester plc and a number of others.

  2.3  In response to criticisms in the Cruickshank report, HM Treasury in December 2000 asked Dr DeAnne Julius to chair the Banking Services Consumer Codes Review Group. In her report, published in June 2001, she concluded "there is broad consensus that service standards in banking can be effectively dealt with by self-regulation . . . Many feel that the Banking Code, while not perfect, is an exemplar of self-regulation."

  2.4  Following the Julius report, HM Treasury invited responses from interested parties. After consideration, the Economic Secretary announced her conclusions in December 2001.

  2.5  Although the Julius report agreed that "ownership", or final responsibility for determining the content, of the codes should remain with the industry, she recommended that an "Independent Reviewer" should supervise the biennial process of codes review. A review of the codes started in January and, following advertising, Professor Elaine Kempson of Bristol University has been selected to undertake this role. The BCSB has submitted extensive recommendations to her in respect of changes to the personal Banking Code and the Business Banking Code. The new codes will become effective from January 2003.

  2.6  In March 2002, the Competition Commission's report "The Supply of Banking Services by Clearing Banks to Small and Medium-Sized Enterprises" together with the Government's response to its findings were published.


3.1  Response to Treasury Committee's fifth report "Banking and the Consumer" dated March 2001

  3.1.a  Easy transfer of current accounts. The Guidance to the existing Code has been revised to include the words "within five business days of receiving a request for direct debit and standing order information from the bank or building society at which the customer is opening their new account, the subscriber will dispatch the information requested." The BCSB is monitoring compliance with this standard as part of its visiting programme.

  The BCSB supports the need to ensure that moving accounts is easy. However, the mystery shopping conducted by the BCSB suggests that the problems are more perceived than real—see Annexe 3 for a summary.

  3.1.b  The revised Banking Code must be implemented fully and fairly. The Julius report endorsed the progress which the BCSB has made and gave recommendations for further action—see below.

  3.1.c  The BCSB should enforce the Code's provisions about superseded accounts rigorously. The BCSB conducted a major survey of superseded accounts, as a result of which disciplinary action was taken in a number of cases. Two further cases are currently in process. As a result of the BCSB's action the practice is significantly reduced, even if not entirely eliminated. Recommendations for further strengthening the Code in this area have been submitted to Professor Kempson.

  3.1.f  Basic Bank accounts should be made available and marketed more actively. The Current Code states "we will give you information on a basic bank account if we offer one and if we think you might be interested in it". The present Code review will consider whether this clause should be strengthened.

  Meanwhile, we are currently conducting our own survey to establish whether branch staff in the firms providing basic accounts are adequately informed about these accounts. We shall take action if they are not.

  3.1.h  Charges for cash withdrawals from ATMs should not be reintroduced. The Code ensures that customers are made aware of any charge by means of a screen message before they commit to making a withdrawal and that any charges are detailed on statements. The BCSB has monitored compliance by means of its own mystery shopping. (NB Some "convenience" ATMs do continue to apply charges, but these are clearly shown before the customer is committed to the withdrawal.)

  3.1.j  Regulation of credit card networks. As a result of the BCSB's insistence, acceptance of card transactions ("merchant services") has been included in the Business Banking Code.

3.2  Response to Julius Report and Economic Secretary's letter

  The BCSB's full response to the Julius Report recommendations has been published and is available on the website. A summary follows:

  3.2.1  A new standard for account switching. The BCSB supported this recommendation, but felt that the proposal for a "five week finish" was too simplistic. They considered that the suggested £50 penalty was an unnecessary precedent and that failure could be dealt with under the Ombudsman scheme. The Economic Secretary has asked for further market research to be undertaken.

  3.2.2  Portable credit history. Desirable, but the existing practice of looking at recent statements and conducting credit reference agency checks may be adequate given the significant IT cost of the proposal.

  3.2.3  Customer Annual Statement Summary. Supported. Should be part of the forthcoming Code review.

  3.2.4  Three code formats. Now implemented.

  3.2.5  Biennial Code Reviews. Now implemented.

  3.2.6  Published aggregate compliance data. Now implemented.

  3.2.7  Published individual compliance data. Not supported, for a variety of reasons. The Economic Secretary has accepted this view and has asked for alternative proposals which are currently being considered.

  3.2.8  Universal coverage of codes. Strongly supported, as far as possible within a non-statutory framework. See 1.2 above.

  3.2.11  A better deal for those in financial difficulties. Now implemented. The new Guidance to the Code significantly strengthens such customers' protection and has the support of consumer bodies.

  3.2.12  Business Banking Code. Now implemented.

3.3  Response to Competition Commission report

3.3.1  Behavioural Remedies

  Paragraph 2.550 of Volume 1 suggests a number of behavioural remedies. The BCSB supports those relating to account switching. We also support more transparency relating to standard pricing to enable price comparisons to be made.

3.3.2  Informal Remedies

  Paragraph 2.608 includes the following suggestions for additions to the Business Banking Code. The BCSB's comments follow in italics:

  3.3.2(a)  An agreement to provide a statement of a cleared balance at an approved and published charge. We agree that it would be useful for many customers to have such a statement, but we suspect that the systems implications of providing it are considerable. We question whether the benefits outweigh the costs and fear that such a requirement raises the barriers to entry by small players—something which the Competition Commission would wish to avoid. There may be other ways of providing such information eg by showing value dates and/or clearance times.

  3.3.2(b)  A requirement that reasons for refusing a loan application be given on request including written reasons if requested. We support this proposal.

  3.3.2(c)  In the event of any move to standard contracts, meeting the criteria . . . that they be approved by the Plain English Campaign. We support this proposal in principle and would wish to consider further the practical implications. The Business Banking Code already says that subscribers will "give you information about our products in plain language".

  3.3.2(d)  As to errors and compensation, a requirement to settle or use best endeavours to settle a specified percentage of disputes within a specified period of weeks, and performance tables monitoring the incidence of disputes and performance against this objective. We feel that this should be covered by the FSA's standards for complaints and should be monitored by the FSA, not the BCSB.

  3.3.2(e)  In addition, a commitment to pay for errors according to a standard scale of compensation, possibly including agreement to pay SME costs and costs of any agency advising the SME if (i) the bank is in error and/or (ii) if an award of an independent arbitrator is greater than the compensation offered. We are sympathetic to this proposal, the implications and working of which need further consideration.

  3.3.2(f)  As to security, a commitment to take the minimum practical security unless in return for an explicit improvement in terms, including means to appeal against the unnecessarily high security, and rules for taking third party security and guarantees. We see real problems of defining "minimum practical security". Security requirements are a competitive issue: it will be easier for SMEs to shop around if portable credit histories are available. The Business Banking Code already covers the question of unlimited guarantees.

3.3.3  Ongoing OFT involvement

  The memorandum of the Director General of the OFT dated 12 December 2001 suggest the need for "a separate SME Bank Code" for the eight major banks (para 25) and additional OFT resources—a monitoring officer with a support team—for ensuring compliance (para 41).

  The BCSB sees considerable problems and significant cost implications in introducing additional and potentially overlapping codes of practice and monitoring arrangements. We hope that early discussions with the OFT may resolve this.

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