Category Archives: Finance

The British Banking Sector : From PPI to Frankfurt

The British banking sector has long trumpeted the values and virtues of being part of the EU.

Setting aside the banking, bureaucracy, and regulatory red tape set out endlessly by Brussels, one very significant point was that the big banks could have their regional of global headquarters in the City of London, and from there have their subsidiaries throughout Europe. As such, setting up a regional, international headquarters in the City has for a very long a time been very attractive to large, multinational banks. This in turn meant that the large scale financial activity in the City of London brought great benefits to the UK banking sector, and the UK economy overall. This is part of the banking concept of “passporting.” Essentially, a financial institution or bank can set up in the UK, and be able to serve clients across the European Union, and not need to get further banking licences.

Now that Prime Minister Theresa May has stated her intention to trigger Article 50 just before April – that lucrative situation for the City of London is under threat.

It was always a concern that banks might consider relocating to other countries in Europe following Brexit, taking millions (billions, maybe?) of pounds of financial revenue with them. With such a relocation, the valuable passporting rights would be preserved throughout the rest of the EU – and would erode at London’s status as a global financial hub.

Fuelling such uncertainty and potential economic damage, in October 2016 head of the Deutsch Bundesbank (German Central Bank) Jens Weidman stated that that would indeed be the case in the event of a “hard Brexit.” In an interview with the Guardian, Herr Weidmann stated that those passporting rights were “tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area.” He hinted that banks would probably seek to relocate to other financial hubs in the EU, stating that as “a significant financial centre and the seat of important regulatory and supervisory bodies, Frankfurt is attractive and will welcome newcomers. But I don’t expect a mass exodus from London to Frankfurt.”

Frankfurt: The New Square Mile?

Frankfurt: The New Square Mile?

With the Brexit negotiations now starting, passporting is one of a very long list of subjects sensitive to both sides that will be under detailed discussion. For the UK banking sector, it is but the latest in a long series of issues over the last decade or so.

The turn of the millennium saw a new and aggressive era in banking. This ultimately ended with the crash of 2007/8. The impact of that era is still being felt today, and has seen already seen the demise of one financial regulator, the Financial Standards Authority. Its successor since 2013 has been the Financial Conduct Authority (FCA). The FCA has been kept very busy with historic cases of excesses, and has imposed record and very public fines and sanctions (such as against the Swinton insurance group) as a very visible deterrent to other financial institutions. However, in setting new rules, and in being an effective regulator for current issues, many consider that the FCA lacks teeth. Indeed, few bankers have actually been imprisoned for effectively breaking the law, and committing financial crimes.

There is no doubt that past misdemeanours have been exposed, with financial institutions being called to account (the Libor or rate swap scandal being a good example). Indeed, one of the greatest scandals was the PPI scandal. Millions were mis sold PPI insurance throughout the 1990’s and early millennium. Banks have been fined, and ordered to make repayments and compensation payments to those affected. In 2017, PPI repayments are still being made, claims and cases are still ongoing, with the major banks setting aside even more money to settle the scandal. The total bill for mis sold PPI is set to be well in excess of £20 billion – probably nearer £30 billion.

Mis sold PPI and Libor are very much scandals of the past, though. Those past excesses are being settled and resolved now. The current issue for the UK banking sector is not one of its own making – passporting and Brexit.

It is no secret that many big UK based banks and international financial companies are considering relocating from the UK. Names ranging from HSBC to Deutsche Bank have all previously made noises that they could relocate depending on the result of Brexit negotiations. Although this will not cost them anywhere near as much as the Libor and PPI fines, the price for relocating will be hefty – as will the losses to the UK economy.

Times change – but the banking sector seemingly does not. Ten years ago, the banking sector was manipulating customers to ultimately charge them more money. Today, the banks will still (potentially) cost the British public money; the only difference is that this time this will be due to lost revenue at overall detriment to the economy, and not due to the excesses of bankers.

It is only financially sensible for the big banks to seek a financial and competitive advantage by relocating to take advantage of passporting rights. That is also the responsible thing to do in line with their fiduciary and shareholder responsibilities. However, such big banks should also consider the impact of any relocation upon the UK financial sector and economy overall.

Many, however, remain optimistic that such a relocation is unlikely. As the Brexit negotiations start, it is to be hoped that that is indeed the case.

Google’s Controversial UK Tax Arrangements Ruled Legal

Google LogoHM Revenue and Customs (HMRC) has reportedly ruled that the highly controversial and very complex tax arrangements are within the boundaries of UK law. The ruling will see the multinational firm only required to pay a fraction of the tax that would otherwise have been due.

The ruling, which followed an investigation over the course of six years and has not previously been published, means that the American search giant is not required to pay tax on proceeds from the sale of advertising in the UK. This decision clears up some of the confusion around the fact that Google is only paying an additional £130 million in tax for the past ten years, which represents a very small percentage of its actual UK-generated earnings.

While it has been decided that the company’s tax practices are legal, many critics still label them tax avoidance and the agreement reached between Google and HMRC has been heavily criticised. The arrangement means that Google pays an effective tax rate of only 3% on the millions of pounds of income it generates in the UK.

The main tactic used to minimise Google’s tax bill involves taking steps to register the bulk of its UK profits in Ireland. A separate company based in Ireland carries out all of Google UK’s operations. The company works exclusively for Google, but is legally a separate business. They carry out work on behalf of Google UK in return for a fee. As a result, from a legal viewpoint only this fee qualifies as profit generated in the UK, and is therefore kept as low as possible. All other profits, which amount to millions, are counted as profits generated in Ireland where the business is based.

A number of other multinational businesses use similar arrangements to register their UK profits as occurring overseas in jurisdictions with lower rates of tax. The ruling that Google is operating within the boundaries of the law could therefore have important implications when it comes to assessing the legality of other major companies engaging in alleged tax avoidance. Technology giant Apple and major online retailer Amazon are among the more prominent examples of companies employing similar tactics.

The decision that this practice is currently legal has also led to increased pressure on the government to take steps to close loopholes and prevent profits from multinational businesses being diverted abroad in order to avoid paying tax in the UK on income that has been generated here.

Mis-sold PPI and its Repercussions

In the past couple of years, numerous cases of mis-sold PPI have been uncovered leading to an enormous spurt in claims for PPI refunds. PPI or Payment Protection Insurance covers the credit card payments or loan payments in case of sickness, accident or unemployment. You may have also been mis-sold the policy without your knowledge.

Considering PPI Claims

If you look into the PPI basics, you will find that the policy is in essence a good one, but due to the wide mis-selling, hundreds of people are left without any cover. And this even happened in spite of paying a huge amount in monthly premiums. The cost of the insurance is large, and dwarfed the interest thus leading many people to think of it as an expensive affair.

Cause for Mis-selling

The financial providers were under huge stress to increase the sales of PPI which forced them to mis-sell thus leading to the PPI fraud. You could have avoided getting embroiled in the PPI scam if you had known whether you really need to have a PPI while taking the policy.

Standalone PPI

If you have taken a PPI policy along with a loan or mortgage, the provider should let you cancel the insurance. If you do need a PPI, you should get it as standalone insurance and cancel the PPI you purchased along with the loan to save money. A PPI calculator will help you know the exact amount of money you need to pay.  You get to save money with a standalone policy because the commission money will be reduced. With a standalone factor, you need to cover only one third amount of the cost.

If you have been mis-sold, you can lodge a PPI complaint with the concerned provider, or get assistance from the Financial Ombudsman Service. PPI help can also be obtained by approaching PPI claim companies, such as www.oraclelegal.co.uk.  With the High Court judgment being made in favour of the consumers, PPI claims should be dealt with in a fair manner now.

Chancellor confirms LLP tax clampdown

In the autumn statement chancellor George Osborne revealed that controversial measures to stop employees claiming partnership status to avoid tax, will be implemented in due course.

This year’s Autumn Statement was held on 5th December 2013. The most expected announcement, as a result of the summer consultation, concerned the proposed controversial legislation which affects fixed share members and the taxation of corporate members.

1The chancellor declared that he is determined to guarantee that tax advantages of partnerships are not abused. Furthermore, he revealed that changes proposed in the draft National Insurance Bill earlier this year will be applied soon.

The requirements postulated in the new rules are for many members of limited liability partnerships to be obliged to pay higher national insurance contributions by removing an automatic exemption. This is a result of a government announcement in the budget that the government would remove the assumption that LLP members are self-employed rather than employees.

However, the Law Society made a warning that these proposed measures would have serious implications for the legal and business community, and posed a risk to UK’s reputation as an attractive business location.

Chris Grayling Says Court Might Increase Small Claims Limit in the Future

UK Justice Secretary Chris Grayling had said that it is possible that courts might decide raising the small claims limit in the future despite refusing to increase it today. According to Grayling, he had listened to the observations of the House of Commons transport select committee and their opinion on retaining the £1,000 threshold regardless of complaints.

1The raising of the small claims limit was the first step in lowering the premiums of car insurance, which was triggered by fraudulent car accidents claims with “ghostly” injuries, namely whiplash injuries, which pay out greatly because it causes severe pain without physical manifestation.

Car insurance companies said that the disproportion of insurance claims to the number of car accidents authorities record is a sign that many fraudsters are taking advantage of the system, which leaves out those who really need their compensation.

According to the House of Commons transport select committee, now is not the time to raise the small claims limit because it will truly make it difficult for those genuinely in need of the insurance and can make it easier for fraudsters to again take advantage of the small claims courts despite having a smaller payout.

Medical Inspection and Check Up

Grayling mentioned that he wanted to make sure insurance companies will encourage their customers to get a medical survey before they get their compensation and share their data on suspected fraud cases to solicitors and lawyers to carry out more effective checks with their clients.

Experts said that by 2014, the UK will have its own independent specialist medical panels that would inspect whiplash cases and other car injuries involving soft tissue injuries. As soon as the government finally consults all concerned health bodies it would make a standardised form of reports and publish the scheme of the new system.

Implications

Lifting the small claims limit will allow insurers to challenge the claimant’s case in court. Grayling also mentioned that the court might lift information fees from lawyers, solicitors and insurance companies in an attempt to bring down the legal costs of challenging a claim.

Many insurers just recompense their customers because legal costs for challenging suspicious claims are more costly than the lump sum repayment they can provide. For more information about the claims process in the case of injury, click here.

The Rise of the Legal Compliance Sector

All the recent scandals in the financial world, such as PPI, LIBOR and Rate Swaps etc have had a big impact – not just for the financial institutions and the customers affected, but for the economy too.  Besides the millions that have been exchanged in compensation payouts, costs and fines, there are the changes that have emerged from the change in views towards financial institutions and their employees. New rules, regulations and regulators such as the Financial Conduct Authority (from the ashes of the Financial Services Authority) and the Prudential Regulation Authority are now in place, and there has been a real shift in focus for many finance related businesses to not only running their businesses and making a profit, but running them in the correct way too.

Hence the recent rise in what was once the more modest compliance sector and the emergence of compliance as a career path in its own right.  Graduate schemes specifically in compliance began a few years ago, though many to the sector are those who have made a move from careers in banking, accounts, audit, and indeed, law.

Those with legal education and experience are particularly able to demonstrate the skills needed for the compliance profession – namely the ability to read, understand, analyse and apply complex legal and regulatory documents. Precision is key in this field as the consequences of errors can be vast, therefore workers in compliance must be technically competent and highly skilled in a business environment too.

Despite the cutbacks that many employers are making since the recession in terms of investment and employees, compliance is the sector that is tending to withstand such pressures.  Banks in particular are reinforcing their compliance departments and raising standards, with hedge fund roles and insurance based roles showing particularly high rates of employment growth.  Salaries are likewise often withstanding the pay freezes with many who work in compliance expecting a pay rise this year – a true testament to the importance of what their role brings.

The future also looks bright for the legal compliance sector.  Recruitment agency Randstad note the growing trend in vacancies available for compliance roles, stating a prediction of more than 30,000 new jobs by the end of this decade. Compliance could definitely prove to be a promising career indeed for those with the right qualifications and skills.

The Truth Behind the PPI Claims Statistics

PPI or payment protection insurance has, over he past few years, been in the news for all wrong reasons. Introduced as an insurance plan that would cover monthly repayments following an accident, sickness or redundancy, PPI has emerged as one of the most poor value products to ever have been introduced in the UK financial market. The mis-selling of the policies and the fact that the banks made huge profits by selling these policies all made the PPI a controversial financial product. Further, the non-payment of the claims and the fact that millions were forced into buying an insurance policy they could never claim on have made this the biggest mis-selling scandal in UK history.

The sheer scale of the mis-selling, that made the banks and estimated £5billion a year for almost a decade, has meant that this is now also the biggest compensation scheme ever conceived. The title, previously held by the Miners Compensation Scheme which ended in 2004 and paid out £4.1billion over 13 years, has already been dwarfed the PPI compensation payouts which have already eclipsed £7billion over the past 2 years. Many analysts have estimated that the final bill will be in excess of £25billion – making this the biggest compensation scheme in the world, not just the UK!

The wholesale industrialised mis-selling of PPI by bank staff was driven by greed, with some reporting that they received commissions of upto 87% for selling the policy. Not only that, but they were also set very rigid sales targets which meant that if they did not push the product, their job was on the line as the banks were putting profit above all else.

To date, over 4.5million people have already made a claim for PPI compensation but according to recent figures released by the FOS, this represents just 10% of the total who may be eligible to claim.

FOS Uphold RatesThe number of complaints being rejected by the banks is also alarming, as the uphold rate at the FOS is over 75%. In December 2012, the UK’s biggest bank, Lloyds Banking Group, released a statement saying that 50% of claims they were receiving were either “fictitious or bogus”. This may well have been a misdirect designed to discredit claims management companies and put people off making a claim. According to the FOS only 3% of claims are considered fraudulent or fictitious.

The number of people turning to CMC’s such as PPIClaimsAdviceline.com is also dropped from 76% in 2011 to 59% in 2012 – a drop of 17%, attributed to greater consumer awareness and a joint campaign by consumer groups Which? and MoneySavingExpert and the banks to discourage people from using CMC’s.

The role of finance lawyers in tax investigations

Anyone can cringe at the idea of having a tax investigation. It is definitely one of the most stressful things in life. It is necessary to find a specialist in helping you in resolving tax investigations and give you some peace of mind. Things like investigations, enquiries, disputes as well as conflicts can affect you not only mentally but also with many other aspects of your life. The HM Revenue and Customs are very stringent when it comes to these tax issues and that is why it is necessary to be aware about your situation and seek help from a professional finance lawyer to help you should you be under investigation for your tax activities.

Finance lawyers often deal with cases from sole traders as well as large corporates, and even trustees or partnerships. Should there be some inconsistencies with the past tax payments, the finance lawyer will shoulder the pressure, and help these entities to find better ways to handle the situation and avoid sanctions that could affect their business, employees and their reputation. Through the help of a finance lawyer, the client need not to have contact with the HMRC since he or she will represent the client and fight hard to ensure that the tax penalties will be fair and not make the matter too complicated for both parties. It is necessary to have a team of professionals who will make an exhaustive analysis of the tax history of the client and they will analyze every detail to avoid serious problems in the future.

One of the most popular ways a lawyer can give to the client is preparing voluntary disclosures and paying the necessary amounts to ensure that they pay their dues and not be subject to more serious legal sanctions. They also help in resolving tax investigations and deal with tax enquiries for different entities.