Memorandum submitted by the British Bankers'
The British Bankers' Association is the main
trade body for banks in the UK. Our members include many providers
of banking services to personal and small business customers.
The vast majority of these banks subscribe to the Banking Code.
We are grateful for the opportunity to submit
written evidence to the Treasury Committee. We understand the
Treasury Committee's current inquiry to be focused on banking
services for personal and small business customers, building on
the Committee's report, Banking and the Consumer, of March 2001.
In view of this, the Committee might find it helpful to have our
comments on some of the main recommendations of that Report and
these are set out below.
There have been several significant developments
since the publication of Banking and the Consumer.
First, the Report of the Banking Services Consumer
Codes Review Group (the "Julius Report"), was published
in May 2001 and addressed some of the same issues as the Treasury
Committee. Significantly, the Julius Report supported the current
self-regulatory approach to retail banking business. The current
version of the Code and the compliance framework underpinning
it is widely respected and is, as noted in Dr DeAnne Julius's
letter to the Chancellor of 30 May 2001, "something of an
In December, the Economic Secretary to the Treasury,
Ruth Kelly, announced the Government's response to the Julius
Report. The Minister endorsed strongly Dr Julius's support for
the Banking Code and the Business Banking Code. She also welcomed
the BBA's response to the Julius Report and our commitment to
implement most of its recommendations.
Second, the introduction of the Business Banking
Code on 31 March 2002, in line with time-scales announced in April
2001, extended the protections of the Banking Code to small business
customers (ie those with a turnover of less than £1,000,000).
The Business Banking Code pays particular attention to calls for
greater transparency in account charges, financial assessment,
security and financial difficulties as they relate to small businesses.
Third, in January this year, we announced the
appointment of Professor Elaine Kempson to carry out the 2002
review of the Banking Code and Business Banking Code. This was
consistent with one of the central recommendations of the Julius
report; namely, that future reviews of the Banking Code and Business
Banking Code should be conducted by an independent person.
Professor Kempson who is the head of the Personal
Finance Research Centre at the University of Bristol is consulting
widely with all key stakeholders, including the industry. She
will present her findings to the Code sponsors (BBA, the Building
Societies Association and the Association for Payment Clearing
Services) in the summer. Her report, together with the response
of the Code sponsorswho retain authorship of the Codeswill
be published in the autumn. It is planned that revised versions
of the Banking Code and Business Banking Code will come into force
from 1 January 2003.
Fourth, the publication in March 2002 of the
report by the Competition Commission, on the Supply of Banking
Services by Clearing Banks to Small and Medium-Sized Enterprises,
together with responses from the Government and Office of Fair
Trading. At this stage, members of the BBA who are affected by
the suggested remedies are considering the business implications
of these remedies. The banks will be holding bilateral discussions
with the OFT and until such time as these discussions bring clarity
to the way forward, the BBA will not adopt an industry position.
There have also been a variety of individual
initiatives by banks which demonstrate that competition and innovation
continue in the banking market. We would expect banks to refer
to these initiatives in their own evidence to the Committee.
BBA comments on the Treasury Committee's recommendations
in Banking and the Consumer
(a) We believe that very easy transfer
of current accounts between banks is essential to ensuring increased
competition in personal banking services. We believe that the
major retail banks' efforts to achieving this aim in the twelve
months since Cruickshank's recommendation on this point have been
disappointingly slow. They must do very much better in the next
twelve months. Once the computerised system has been devised and
tested, we expect banks to commit themselves to a shorter deadline
than ten working days within which to provide account details
to the new bank. The time limit should be specified in the Banking
Code. Furthermore, there should be penalties (or liability to
pay compensation, or both) in the event of non-compliance. We
look forward to Dr DeAnne Julius's report, which the Minister
said would be available by the end of April 2001 (paragraph 12).
BBA members are committed to making it easy
for customers to open and close current accounts. Successive studies
have demonstrated that the process of changing their current account
supplier is much easier than is sometimes perceived. A mystery
shopping exercise by NOP on behalf of the Banking Code Standards
Board (published on 24 July 2001) reinforced the assessment of
the Cruickshank report that the "hassle" of changing
accounts is much more perceived than real.
The Julius Report recommended that the time
limit for the provision of account information from the old bank
to the new bank should be reduced from 10 working days to five,
from the end of 2002. In fact, we implemented this a year ahead
of schedule on 31 December 2001, and it is reflected in the Banking
Code Guidance for Subscribers and in the Business Banking Code.
Compliance with the new standard is being monitored by the Banking
Code Standards Board.
The Julius Report also recommended the industry
should adopt a "five week finish" for the end to end
process of closing a current account and opening a new account
with another provider. In our response to the Julius Report, we
set out the service standards and deadlines we will put in place
to ensure the banks complete on time the stages of the process
within their control. In most cases this would ensure the process
was completed within five weeks, if that was what the customer
wanted. However, because some steps in the process are outside
the control of the banks and require co-operation from, for example,
direct debit originators and the customer's employer, it would
not be possible to guarantee that it will always be concluded
within five weeks. A commitment to the goal of a five week finish
is contained in the Business Banking Code.
(b) We agree that the revised Banking
Code must be implemented fully and fairly by all banks. If this
does not happen we believe that the case for further statutory
regulation will need to be considered (paragraph 14).
The revised Banking Code came into force on
1 January 2001. The Julius Report recommended that the Banking
Code should have universal coverage. We support this recommendation.
We are very close to having universal coverage already: 120 banks
and building societies currently subscribe to the Banking Code
and 39 subscribe to the Business Banking Code. At least one of
the notable non-subscribers, National Savings and Investments,
has announced its intention to sign up to the Banking Code very
soon. We welcome this. However, in our response to the Julius
Report we pointed out that, as voluntary codes, the industry cannot
force firms to subscribe. We also suggested the Treasury and the
FSA could be doing more to encourage firms to subscribe to the
(c) When banks pay lower rates of interest
on older accounts, they hope that their customers will not notice.
We regard this practice as unacceptable. The Banking Code Standards
Board should report on the elimination of such bad practices and
enforce the Code's provisions about superseded accounts rigorously
The Banking Code and Business Banking Code contain
provisions aimed at ensuring customers in superseded accounts
get a fair deal. In the past 18 months the Banking Code Standards
Board has targeted this area in its monitoring of Banking Code
compliance and has pursued a number of firms it considers to have
fallen short of the prescribed standards. We acknowledge that
there is no room for complacency in this area and we would expect
it to be considered in some depth by Professor Kempson as part
of her current review of the Banking Code and Business Banking
(d) We believe that banks and building
societies providing banking services should include in their annual
reports information on the number and distribution of their retail
outlets, both via automatic teller machines and over the counter
Many banks already publish details of their
A Cash Machine Locator, showing ATMs nearest
to any particular point in the UK, is available on the Link Interchange
Network website www.link.co.uk or via the BBA's website www.bba.org.uk
In addition to the developments mentioned in
the Committee's report, four banks have initiated "Shared
Banking Services", a pilot which launched on 2 January 2002,
running for 12 months until 31 December 2002, that allows personal
and small business customers in 10 locations across England and
Wales to undertake basic banking services through another participating
bank's branch. The branches are all in locations where there is
only a single bank branch and no other within approximately five
(e) We agree that there may be a demand
for bank accounts without borrowing facilities. We therefore welcome
the development by the banks of basic banking accounts and the
arrangements to make them available at post offices as well as
bank branches. We urge banks to market these accounts more actively
than they are at the moment. We believe that the draft Memorandum
of Understanding between the Post Office and the banks participating
in the "Universal Banking Service" should be published.
We believe that there should be scope for transition from basic
bank accounts to accounts with borrowing facilities and that these
followon accounts should also continue to be available
at post offices (paragraph 24).
With all new bank and building society products
there is a time delay between introduction and wide spread recognition.
Whilst some of our members have had their version of a basic bank
account on offer for some time the majority have launched them
as part of the run up to the introduction of Universal Banking
Services. We would acknowledge that there will be a continued
need to promote awareness of these products among customer-facing
staff and among customers and the industry is working hard towards
this end. We believe that the introduction of Universal Banking
Services in April 2003 will have a significant impact on this
The transition across financial products from
less to more sophisticated is as important for the financial services
sector as it is for customers and ultimately UK plc. The question
of whether other accounts should also be made available at post
office counters is a matter for the individual banks and building
societies concerned. Some already make a range of facilities available
in this way; others have decided that they do not wish to follow
(f) While we accept the need to guard
against money laundering and fraud we also believe it is essential
that banks do not debar people from access to basic financial
services because they do not possess the usual identity documents
The banking industry acknowledges the Committee's
concern. Our members are seized of the need to be as flexible
as possiblewithin the constraints of the relevant legislationabout
the types of identity documents which are acceptable as proof
of identity and address. This is reflected in the guidance for
subscribers to the Banking Code and in the 2001 edition of the
Joint Money Laundering Steering Group's Guidance Notes. We would
welcome government and regulatory recognition that tightening
identity and verification requirements works against making access
to bank accounts easier for those who do not possess the usual
documents. In our view, a pragmatic balance needs to be found.
(g) We welcome the abolition of charges
for cash withdrawals from most machines, and recognise that this
was largely the result of public pressure. We believe that charges
should not be reintroduced (paragraph 34).
Among the changes to the Banking Code introduced
in January 2001 were requirements for subscribers to inform customers,
by onscreen message, of any cash machine charges they will incur
when they withdraw cash. This ensures full transparency for the
customer and enables them to abort the transaction if they are
not prepared to pay the charges. The question whether or not to
charge for the provision of services is a commercial matter for
individual providers. We do not think it appropriate for the Code
to interfere with the pricing decisions of our members.
(h) Banks appear to be reluctant to invest
in modern technology to speed up cheque clearing. Even though
the use of other methods of payment is growing, we believe that
cheques are likely to remain an important part of the financial
system and customers' convenience should be given a higher priority
The decline in the use of cheques continues.
Whilst overall payment numbers increase, the number of payments
by cheque decreases in absolute, not just relative terms. The
latest figures, to be published by APACS on 16 May, show that
plastic card payments (debit cards, credit cards and ATM withdrawals)
now account for over 51 per cent of non-cash payments. In 2001
only one non-cash payment in five was made by cheque and by 2011
APACS forecast that the proportion will have fallen to one in
12. Also in 2001, customer preference for the convenience of payment
by debit card (just 13 years after its introduction) resulted
in such payments exceeding the total number of cheque payments
made by both personal and business customers.
(i) We are persuaded that credit card
networks need to be regulated along the lines suggested by the
Government (paragraph 39).
(j) The OFT will need access to both
bank charges and their internal cost details if it is to ensure
that the market for banking services is operating competitively.
In addition, consumers need accurate, comparable price information
and we look forward to being able to assess the extent to which
the Government's CAT standard proposals and the FSA's comparative
tables achieve this (paragraph 45).
The Government announced in August 2001 that
it intended to proceed with its plans to give the OFT powers to
regulate participants in payment systems.
13 May 2002
4 HC 138 (Session 2000-01). Back