Saturday 23rd June 2018
Mobile operator EE has said it will activate the UK’s first live 5G trial network in London’s Tech City in October –The UK government says organisations that are aiming to establish themselves or expand as Public Service Mutuals can now apply for a share of £1 million in funding -- India’s central bank raised its benchmark interest rate for the first time since 2014 to curb rising price pressures and calm financial markets as policy tightening in the US rattles emerging markets – A new report from South Africa's Reserve Bank (SARB) contains exception results for a trial of its blockchain-based system for interbank clearance and settlement. According to a release yesterday SARB says it has completed a 14-week "realistic" proof-of-concept that managed to settle the country's typical 70,000 daily payment transactions within two hours, taking an average of 1–2 seconds for each transaction while preserving full anonymity. Absa, Capitec, Discovery Bank, FirstRand, Investec, Nedbank and Standard Bank are among a slew of banks that participated in the exercise. Even so, despite the success claims, SARB says its proof-of-concept doesn't mean it plans to replace the existing real-time gross settlement (RTGS) system with a live blockchain implementation, yet – According to Mickhail Shlemov, VTB’s Capital’s head of research today, “With the demerger of Bank of Georgia Group’s investment business to Georgia Capital PLC, we have revised our forecasts for Bank of Georgia Group so that they now include only the banking business. We expect the bank to benefit from this demerger amid an acceleration in corporate loan growth (although retail lending is likely to decelerate), with the total loan book expanding at a CAGR of 11% in 2017-21F. However, NIM performance headwinds are likely to stay intact. Management has reiterated its strategic targets, and we also expect the bank to show ROE of more than 20% in the next three years, with a 40% dividend payout ratio. As a result, our new 12-month Target Price is GBp 2,300/share. This implies an ETR of only 14% (the stock is up 10% since demerger day).” On May 29th, Bank of Georgia Group (BOGG) announced the completion of the demerger of the Group’s investment business to Georgia Capital PLC. As a part of the process, the bank has issued 9.8mn shares (up to 19.9% of the total share count) to Georgia Capital. Yet the capital will also be diminished by a special dividend payment of some GEL 120mn (GEL 3.10/share), similar to the proposed BGEO Group payment – Reuters reports that European parliament member Danuta Huebner says that London’s call for EU access after Brexit under mutual recognition will not work. Equivalence would let the EU set the rules – Scott Eaton, the former chief operating chief for Europe at MarketAxess has been appointed CEO of Algomi following the departure of co-founder Stu Taylor earlier this year. Eaton has taken over the role with immediate effect and will focus on developing Algomi’s fixed income services, including data aggregation and the Algomi ALFA market surveillance tool – The FCPA Blog notes today that banking giant Credit Suisse Group has agreed to pay a $47m penalty to the US Justice Department to end an FCPA investigation into hiring practices in Asia -- The Securities and Exchange Commission (SEC) voted Tuesday to approve a proposal to modify the Volcker rule, the last of the five agencies responsible for the rule to do so. The proposal is now open to a 60-day public comment period. Treasury Secretary Steven Mnuchin called the move "an important first step" and noted Treasury's support for "better tailoring the application of the rule, preserving liquidity during periods of stress, decreasing unintended compliance burdens and encouraging capital formation." --

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Why the FCA should regulate for the many and not the few (or Michael Sheen)

Wednesday, 30 May 2018
Why the FCA should regulate for the many and not the few (or Michael Sheen) On Thursday this week FCA chief executive, Andrew Bailey, is expected to declare war on high-cost credit when he publishes a long-awaited review into the sector. He will do so despite saying repeatedly that it plays a socially useful function. By Greg Stevens, chief executive of the Consumer Credit Trade Association

On Thursday this week FCA chief executive, Andrew Bailey, is expected to declare war on high-cost credit when he publishes a long-awaited review into the sector. He will do so despite saying repeatedly that it plays a "socially useful" function. By Greg Stevens, chief executive of the Consumer Credit Trade Association

High-cost credit is minuscule compared to the overdrafts, credit cards and motor finance that comprise the lion’s share of consumer lending by volume. And yet it presents the FCA with the trickiest of political challenges: do the campaigners’ bidding and target the lenders; or prioritise the consumer and maintain access to credit.

The leading debt charities are clamouring for tighter controls. In recent weeks their efforts have been greatly boosted by the involvement of actor-turned-activist Michael Sheen whose presence has electrified the debate.

The FCA is trying to balance the need for consumers to access credit with the necessity to protect them from harm; and Andrew Bailey is acutely aware of the precariousness of this balancing act.

In a speech to bankers last year he acknowledged that “there is an issue around access to credit, which for me is at the heart of our interest in high-cost credit. Put simply, it would not be an acceptable outcome to cut consumers off from access to credit when they have a justifiable need for credit, for instance to smooth erratic or lumpy income”.

The debt charities are more single-minded. For them the prescription is simple: cap the lenders’ charges and vulnerable consumers will be less indebted. If demand persists, social lenders like credit unions will meet it. Past experience shows this to be wishful thinking.

The political allure of rate caps is undoubted. Even George Osborne was susceptible: it was he as Chancellor who introduced the cap on payday lenders. But the FCA must resist the pull of politics and regulate in the interests of the millions who need credit to manage their household budgets. It must look at the economic facts and regulate for the many, not the few, or for Michael Sheen.

Uncomfortable as it may be, the bald truth is there is a causal link between moves to increase consumer protection and a constriction in the supply of legal sources of credit.  The irony is that moves to cap charges and protect consumers end up having the opposite effect.

Debt campaigners contest this, but the evidence is mounting by the day.

First, look at the Bank of England's own statistics. Its Credit Conditions Survey for Q1 showed the availability of unsecured credit to households had decreased “significantly” in the first quarter as lenders tightened their criteria. The Bank’s Money and Credit survey in May reported a further constriction: the first reported monthly decline since 2013.

Second, the Government’s April announcement of a 16% increase in funding for its Illegal Money Lending Teams. The Treasury concedes there are over 300,000 people in debt to illegal lenders with many experts saying numbers are much higher in the “ghost economy”. The FCA’s own statistics show 3.6 million UK adults are borrowing from ‘friends and family’, for many a euphemism for unregulated lenders.

Third, a remarkable admission from Andrew Bailey in Parliament in May. Despite claiming there had been no ‘waterbed effect' since it brought in the cap on payday lending, Bailey admitted the amount of outstanding ‘rent-to-own’ and ‘home credit’ debt had more than doubled in the two years since the cap was introduced. If ever there was going to be a waterbed effect as a result of a cap, it would be to these two sectors.

The conclusions are clear: the overall availability of credit is decreasing; the FCA’s interventions are reducing choice but not demand; and, correspondingly, the incidence of illegal, unregulated credit is rising.

The lessons should also be clear: limiting the supply of credit does nothing to reduce the demand. Take away first choices and consumers will hunt out alternatives. These may be in the regulated sector, equally they may not.

Worryingly, there is more to come. The FCA is about to bring in new regulations that will drive even more companies out of the market. Its proposed rules on affordability will fall much more heavily on businesses serving ‘non-mainstream’ consumers than the banks. Given the economics of small sum lending, these extra costs will be impossible for many to bear.

The result will be market exit and less access and choice for consumers. This may be what the campaigners want to see, but it will not be welcomed by the vast majority of consumers up and down the country.

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