Memorandum submitted by The Banking Code
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
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 1a
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):
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
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
1.6 The BCSB works closely with other regulators
and with the Financial Ombudsman Service.
2. RECENT DEVELOPMENTS
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
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 websitewww.bankingcode.org.ukdetail 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. RESPONSE TO
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 realsee
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 actionsee 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
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
3.2 Response to Julius Report and Economic
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
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
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 playerssomething 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
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 resourcesa monitoring officer with a support teamfor
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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