Tag Archives: Eu

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.

Brexit Opponents Consider Legal Routes

BrexitOpponents of “Brexit” are considering legal steps they can take to try and prevent the UK’s exit from the EU. Lawyers and campaigners have been studying the situation to identify areas of the law through which the decision may be challenged.

The referendum has proved a decisive issue for the UK, and a vote in favour of leaving the EU by a majority of just 51.9% has left many opponents of Brexit unsatisfied. Many not only continue to believe that leaving the EU would be a mistake, but feel that, with the public still essentially split down the middle, the vote was too close to form the basis of such a major and long-term decision for the country’s future. Matters have not been helped by polls suggesting that over 1.1 million people may regret voting leave, either in light of things that have happened and information that has come to light since voting closed or because they used it as a protest vote.

Millions of people, an unprecedented number, have signed a petition for the government to repeat the referendum in hopes that the British public will be able to come to a more decisive conclusion one way or another. Others fear that this could just lead to a “neverendum” where vote after vote must be held before a vote that will be accepted can emerge.

Those who oppose either the entire concept of leaving the EU or the acceptance of such a narrow majority have begun looking at possible legal bases for either blocking the UK’s exit from the EU or delaying it for further consideration. Many of these possibilities are rooted in the fact that the referendum itself is not legally binding. A public vote is not part of the process for leaving the EU and under law is essentially an opinion poll, though the government added weight to it by pledging before polls opened to follow the result.

The actual legal mechanism for the UK to enact Brexit is by triggering Article 50 of the Lisbon Treaty, which gives a two-year timeframe for the country to negotiate its exit. Article 50 states that an EU member state may leave the Union “in accordance with its own constitutional requirements.” This has led some legal experts to raise questions about just what requirements are lawful in the UK constitution, with some claiming that the Prime Minister alone does not have the authority to invoke Article 50 as this would overturn the 1972 European Communities Act. Under this interpretation, the Prime Minister requires consent in the form of an act of parliament to leave the EU.

A number of legal experts have subscribed to this view. One of these is Lord Pannick QC, who says that the question of whether such consent should be given is a matter for parliament to decide.

Progress and Limitations on “Right to be Forgotten”

Google Logo 2010Google has recently made some first steps in complying with the recent EU ruling that individuals may have some information about themselves removed from search results as part of a “right to be forgotten.” However, while Google has done a lot in a very short time to comply with the ruling in spite of the company’s own disappointment with the controversial decision, there remain strict limitations in place. Some of these limitations are with the ruling itself, and show no signs of going away however closely Google complies with the law.

Google recently created a webform through which people are able to request the removal of content. Individuals completing the form will have to explain their reasons for considering the content “irrelevant, outdated or otherwise inappropriate.” Under the EU ruling, it is only this type of content that can be removed in order to prevent negative media coverage from a person’s past continuing to dominate any search engine query relating to that individual. Those submitting requests will also have to specify which European jurisdiction they reside in and provide digital copies of identification in order to prove their personal eligibility.

However, by Google’s own admission these efforts are in the early stages. The form is just an “initial effort” with significant changes and improvements to the company’s systems still expected in the months to come.

Furthermore, the EU ruling is disappointingly non-specific even for some of those who agree with the European Court of Justice’s decision. The type of content specified as eligible for removal is extremely broad, and at the same time vague enough to make it difficult to specify any one type of content. For their part, Google seem to have adopted a fairly narrow interpretation. Once a removal request has been received, they will weigh up whether the information’s availability is in the public interest, and if they feel that it is the request is likely to be rejected. When it comes to the public interest, Google seem to have matters such as financial fraud, misconduct and professional malpractice in mind.

There are also some limitations that will never be overcome by Google’s efforts alone. This fact will not be unwelcome to the many who have disagreed with the EU Court of Justice’s ruling, but will certainly disappoint those who are hoping to have negative media coverage buried. For a start, the ruling relates only to search engine results. It will still be accessible through links on other websites and searches within the news website itself. Secondly, it only applies to search engines focussed on markets within the EU. Through the nature of the internet, it is extremely easy for individuals within the EU to access search engines outside EU jurisdictions in which the results may still appear, and this could include Google’s own, main .com domain.