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BRITISH BANKERS’ ASSOCIATIONANNUAL REPORT 2012

2 — BBA ANNUAL REPORT 2012 WWW.BBA.ORG.UK

OUR MEMBER BANKS make up the world’s largest international banking cluster, operating 150 million accounts for UK customers and contributing over £50 billion annually to UK economic growth.

We represent our members to policymakers, regulators, the media and all key stakeholders across the UK, Europe and beyond, working together to promote a legislative and regulatory system that works for customers and promotes economic growth.

Supporting British business; promoting wider economic growthUnder the industry-funded Better Business Finance programme the BBA have been working with members to:

Improve access to finance for UK businesses through initiatives like the Business Growth Fund which gives fast growing businesses a capital boost of up to £10 million. Ensure fairer treatment for businesses by establishing an independently monitored appeals process so that those companies that are turned down for loans can challenge the original decision. Created a new “Finance Finder” – businessfinanceforyou.co.uk – with access to 500 finance providers across Britain. Partnering with the alternative finance providers like the UK Business Angels Association and the Community Development Finance Association to ensure more choice for business looking for finance options.

BBA AT A GLANCE— our work in 2012

The BBA is the UK’s leading association for the banking and financial services sector, representing the interests of more than 240 member organisations with a worldwide presence in 180 countries.

Mentoring Britain’s entrepreneurs In an effort to help businesses that are starting out or growing, the BBA working with the largest UK banks continued to expand the national mentoring scheme in 2012 with over 1,000 bank mentors providing first hand guidance and help to more than 1,200 businesses. Building on the launch of mentorsme.co.uk in 2011 we now have 115 organisations signed up to the online portal providing them with access to 27,000 mentors.

Ensuring fewer homes are repossessed The BBA engaged with the EU to ensure customers in financial difficulty were given 180 days to clear their mortgage arrears, as opposed to 90 days as originally proposed by the European Commission.

Improving access to banking The BBA and its members have been working with HM Treasury to ensure that those individuals who need to have access to a bank account are able to. As a result, by the end of 2012 there were 9 million basic bank accounts in operation. The BBA has produced guidance on what banks need to offer customers who have a disability – including ensuring banks provide an audio induction loop at the counter and at customer service desks,

providing full wheelchair access to all services, and arrange a facility for taking and exchanging written notes. Working with the RNIB the BBA has also provided best practice guidance for banks in their dealings with blind or partially sighted customers. These include providing bank statements and information in large print, braille or audio tape form and providing templates to assist customers writing cheques.

Reclaiming old or forgotten accounts Through the BBA-run MyLostAccount, customers have been reunited with £545 million of lost cash from bank, building society and NS&I accounts. MyLostAccount provides a one-stop shop for reclaiming old or forgotten accounts – even when a bank has changed name or merged. An estimated 315,000 people have been reunited with forgotten funds. Since its launch in 2008 more than 2 million people have visited the website mylostaccount.org.uk.

Co-ordinating donations during disaster relief appeals The BBA co-ordinates banks’ acceptance of donations in cases of disaster appeals. The banks will make no charge for accepting or processing these donations, nor will they charge the inter-bank handling fee for donations made by credit or debit card.

41EU policy

dossiers being worked on

WWW.BBA.ORG.UK BBA ANNUAL REPORT 2012 — 3

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CHAIRMAN’S REPORT

CONFIDENCE IN THE banking system has been damaged gravely and a crucial part of my role is to help restore public confidence and trust. I joined the BBA in October 2012 and I am the first chairman who has not been associated with one of the major UK banks. I intend to use that independence to lead the BBA in a way that is both in the interest of the banking community as a whole and the wider public.

The guiding theme of the BBA’s work has to be to work flat out to restore trust and confidence in British banking. From my discussions with leading bankers, it is clear this is high on their agenda too. There is a growing appreciation that while the sustainable success of the bank is the key business objective, that success must be aligned with working in the wider public interest.

It will require changes in culture within banks and better training for staff. It will require better communication about what banks do and why they do it. I am confident that the senior people in banking accept this diagnosis, that they have plans which they are now putting into practice and the agenda now is to translate those plans into action so that it permeates the whole of the banking scene in the UK.

CHAIRMAN’S REPORT— new leadership for the BBA

We want to restore trust and confidence in the banking industry. This requires a change in culture, better training for staff, as well as improved communication about what banks do and why they do it

Indeed, Mark Carney, shortly to become Governor of the Bank of England, has said: “the time for remorse is far from over… but at the same time, the public sector needs to be more appreciative when the industry makes major contributions.”

BANKING IS CHANGING

What are those contributions? To begin with, the banking industry is considerably better capitalised than it was. It has better liquidity and it accepts the doctrine that you must not be ‘too big to fail’. Banking is changing and some of the changes extend down to the branches. The industry is changing the philosophies that underlie the compensation pay systems for staff dealing with customers, so that their pay is not dependent on meeting sales targets. It is also much more dependent on having satisfied customers.

The fact is that a lot of good things are going on and it would be a mistake to think that banks aren’t doing anything. They are working very hard to restore trust and confidence, and accept that it will be some significant time before the general population see that the industry is working to change.

Another major area of work for the coming months will be dealing with the flow of new financial regulation. Europe is one of the great capital markets in the world, but in 15 or 20 years’ time we are likely to see at least two others. China will be a major player as it gradually liberalises its markets, while countries like Brazil are also moving ahead fast. In these circumstances, not only do you want fair, honest and stable capital

markets, you also want competitive capital markets.

A challenge for the BBA will be to ensure that the legislation coming from the European Union in particular is crafted with this longer-term global competitive situation in mind. It may be that the European capital market could become less competitive in the future and business will look elsewhere for capital raising in 10-15 years, and that is a situation we need to avoid. It will be a priority of the Association to remind the relevant public authorities that London’s place as the pre-eminent international financial centre cannot be taken for granted.

CUSTOMER FOCUS

Yet the BBA also needs to evolve. There is a perception that the BBA is “a club where bankers talk to bankers”. We need to act to counter that impression and to that end we have established a BBA Consumer Panel, to enable us to better listen to customers in our policy making.

We also need to work with our members to ensure that the UK marketplace is a good place to do business. The BBA is a very broad church. If you look at the BBA’s membership list, we have banks from the very biggest to some very small ones. We have ones that are essentially domestic and those who are foreign. Of the foreign banks, we have some that are very active in the wholesale market and others less so. If there is one thing that gives members a common interest, it is that the UK marketplace is attractive to them. We cannot allow that to change.

Sir Nigel WicksCHAIRMAN, BRITISH BANKERS’ ASSOCIATION


CHAIRMAN’S REPORT

“The BBA is a very broad church. If you look at our

membership list, we have banks from the very biggest

to some very small ones”

CHIEF EXECUTIVE’S REPORT


CHIEF EXECUTIVE’S REPORT— working towards a brighter future

THERE IS NO POINT pretending that 2012 wasn’t a difficult year for the BBA, or the banking sector we represent. But those difficulties have also created opportunities, and the BBA emerges from our annus horribilis well positioned to work with our members to help restore trust and confidence in banks.

I was appointed as chief executive just weeks before the LIBOR scandal broke, and took up position two months afterwards. My main priority since then has been to mend LIBOR, working closely with the Treasury and the Financial Services Authority to implement the Wheatley reforms to restore credibility in the index, and to find a new operator for it. I am pleased to report we are making good progress. The scandal also lead to a change of chairman at the BBA, so the Association ends the year with entirely new leadership.

The only good thing to come out of the LIBOR scandal is a renewed determination from banks to do whatever is necessary to win back public trust. Hardly a week goes by without reports in the media of banks instituting new reforms

to their culture and practices as part of that rehabilitation. I have committed the BBA to being part of the solution to the problems facing the industry, acting as an agent for change.

As well as having its first independent chairman, the BBA adopted a new strategy committing itself as a top priority to restoring trust and confidence in banking, and to initiatives that help customers, promote growth and raise standards. One part of that is a change of messaging – making sure we are not defending the indefensible, but being frank about the mistakes of the past.

HELPING CUSTOMERS

To help the industry become more customer focussed, we are setting up a BBA consumer panel to get input from consumer advocates in our policy work. We produced best practice guidance for bank and building society staff for when customers become subject to powers of attorney, or die. We joined the campaign for financial education to be included in the national curriculum. We continued running MyLostAccount, which in its five years since launch has helped 315,000 customers find £545 million from lost accounts.

To help promote economic growth, we drove forwards the initiatives arising from the Business Finance Taskforce to help SMEs. We established the national mentoring scheme Mentorsme, which has provided support so far for over 1,000 businesses, and the independently

monitored lending appeals service. In December, we also made our first submission to the Chancellor’s Autumn Statement outlining proposals that banks would like to see to encourage growth across the wider economy.

WORKING TO REFORM AND

IMPROVE STANDARDS

The LIBOR scandal prompted the government to set up the Parliamentary Commission on Banking Standards (PCBS), which we have been engaging constructively with on a wide number of different issues affecting the industry. In particular, we established a taskforce on banking standards, to consider the range of options for raising ethical and professional standards in the industry,

While 2012 presented the banking industry with many stern challenges, the BBA looks forward with optimism to better times for the sector and the public that it serves

Anthony BrowneCHIEF EXECUTIVE, BRITISH BANKERS’ ASSOCIATION

CHIEF EXECUTIVE’S REPORT


“I have committed the BBA to being part of the solution to the problems

facing the industry”

and submitted its conclusions to the PCBS. We outlined three potential areas of improvement, including strengthening the existing regime by widening the approved persons regime; a top down approach to raise standards in firms, including a possible code of conduct and an independent banking standards board; and a bottom-up approach focussing on raising the professional standards and ethical training of individuals.

PROMOTING ECONOMIC

GROWTH & STABILITY

Throughout the year, we continued to engage in the regulatory and legislative reforms, which continued unabated at both the national and EU level, with many of the proposals made in response to the 2007 crisis coming

to fruition. Legislation was passed to create the new regulatory structure in the UK, with the separation of the Financial Services Authority into the Financial Conduct Authority and the Prudential Regulatory Authority, and the establishment of the Financial Policy Committee. We strongly advocated for the government to give the FPC a growth objective, and were pleased to see it included.

The government laid before parliament the Banking Reform Bill, to legislate the proposals it adopted from the Independent Commission on Banking, most notably that banks must ring-fence their retail operations from their wholesale operations. We worked closely with the government to ensure that these reforms would work as intended to protect the customers

and improve stability.We engaged both in the EU and internationally on the

G20-led financial service reforms, which came closer to implementation. Most notably the European Market Infrastructure Regulation was passed, and moved on to technical standards; the Capital Requirements Directive IV, implementing Basel III rules, moved towards legislative completion; and the Markets in Financial Instruments Directive II continued to take shape. We were disappointed by the delays in the Recovery and Resolution Directive, and have been pushing for its early adoption. The euro crisis has somewhat abated, but the problems in Cyprus show why such legislation is needed.

So we ended 2012 and started 2013 with a clear programme for resolving the LIBOR crisis, with the new UK regulatory architecture being put in place, and the G20 reforms taking shape. Most importantly, banks in the UK are determined to do what it takes to win back the trust of the public and confidence of consumers. If 2012 was a difficult year for the BBA and the industry, we are on course for a far more positive 2013.


RAISING STANDARDS— improving retail banking

A KEY GOAL for the BBA during 2012 was to identify a number of key “problem issues” for customers and make improvements that help consumers with their everyday banking. As part of this work, we embarked on a series of initiatives to help the more vulnerable in society. During the last year the BBA issued improved guidance for powers of attorney in conjunction with the Offi ce of the Public Guardian and leading experts on debt and mental health. This is designed to help people who get into debt as a result of mental illness. We also published guidance on how families can deal with an individual’s fi nancial affairs if that person goes missing. If they are the main breadwinner in a family, then direct debits and standing orders are likely to come from their account. The last thing that families need at a time like this is the stress of unpaid bills, so we issued guidance that should go some way to easing the distress at such times.

The BBA has also been proactive in the development of a debt-management plan protocol to ensure that should customers fall into fi nancial diffi culty, they can expect their fi nancial circumstances to be considered fairly and sustainable solutions found for repayment.

We have been happy to take on board wider views of areas for service improvement and have also worked with government to introduce a series of personal current account control features, culminating with the introduction of annual account summaries this year, to enable greater visibility of account charges on statement sheets and balance alerts.

Throughout 2012 we worked with a range of stakeholders to develop a suite of simple products. It is based on the hypothesis that fi nancial services have become too complex and inaccessible. If complexity is deterring people from opening bank accounts and colouring views of the industry, then we need to do something about it. It all comes back to improving confi dence in the banking sector. This is an area we will continue to investigate as we develop and progress the recommendations contained in the Sergeant Review of Simple Financial Products.

Another good example of how the industry meets its responsibilities to build trust is the ongoing success of the independently monitored lending code, which adds to the protections for consumers in legislation and sets expectations of how to treat customers sympathetically and positively if they are in fi nancial diffi culty.

INDUSTRY REFORMS

This work complements the BBA’s more traditional role of considering policy interventions by government and regulators across the core banking activities of savings, deposits and payments. Here – going with the grain of regulatory changes, the BBA has adopted the Financial Conduct Authority’s (FCA’s) statutory strategic objectives as a framework to guide our policy thinking, broadly: customer protection, competition (including access to fi nancial services) and operational integrity. We have been actively contributing to the consultation process and legislative

change leading to the formation of the FCA and have established a professional working relationship with the FCA’s senior management team.

More specifi cally, our routine policy work has focused on the massive task – which we support – of transferring responsibility for credit regulation away from the Offi ce of Fair Trading and into the FCA, improving information provision for packaged accounts, and promoting communication of the Financial Services Compensation Scheme (FSCS) whilst at the same time negotiating equitable refi nancing arrangements for legacy loans administered by the Scheme and renegotiating the FSCS levy. Elsewhere we have worked closely with the Ministry of Justice to ensure proper regulation of Claims Management Companies – and we continue to pursue this as a priority.

EU ENGAGEMENT

Looking further afi eld at the main areas of legislative and regulatory

Our strategic objectives of customer protection, competition, integrity and access to fi nancial services are refl ected in our retail banking initiatives

Eric LeendersEXECUTIVE DIRECTOR, RETAIL BANKING

RAISING STANDARDS


Social investmentTHE BBA and the British banking industry have made a major commitment to social investment by laying the foundations for the transfer of 15-year dormant account monies to the national reclaim fund enabling monies to be used by Big Society Capital and other community causes while at the same time ensuring that customers can always reclaim their money.

Some £540 million in legacy money has been transferred in the fi rst two years since the establishment of the reclaim fund and monies are beginning

to be streamed for use on social investment and community causes. In addition, banks and building societies have returned £200 million back to customers over the past fi ve years.

The early part of 2013 also saw the fi fth anniversary of mylostaccount, a central tracing service provided by the BBA, the Building Societies Association (BSA) and National Savings and Investments (NS&I).

In all, the on-line service has seen two million visits, 580,000 applications and 315,000 successful searches.

change over the next few years, it is clear that much will come from the EU. My chairmanship of the European Banking Federation’s Consumer Affairs Committee ensures that the UK banking industry gets fi rst-hand insights into the raft of proposed changes that touch on all aspects of the core retail-banking model.

The most signifi cant are perhaps the Data Protection Regulation, The Insurance Mediation Directive (for its potential impact on packaged accounts) and the forthcoming Bank Account Package, tackling transparency, access and switching – notably, areas that the industry has largely already addressed domestically. There are several other dossiers bubbling along including the Deposit Guarantee Scheme Directive, the conclusion of the Credit Agreements Relating to Residential Properties Directive, work on Packaged Retail Investment Products and Unregulated Collective Investment Schemes, implementation of the Alternative Dispute Resolution Directive – and a to-do list that includes a review of the Consumer Credit Directive, the Payments Services Directive and potentially work on over-indebtedness.

THE YEAR AHEAD

Domestically, the agenda for 2013 is already fi lling up as the retail team looks to monitor cash-ISA transfers throughout the peak season to avoid any bottlenecks and unnecessary delays. The BBA team also continues

to support the development of seven-day account switching, led by the Payments Council – a seminal milestone in driving competition in the personal current account market.

To further pursue our ongoing consumer focus, we have established a Consumer Panel and an internal Service Improvement Group to

identify and lead further opportunities for change outside the regulatory agenda. It is very important that the BBA helps government and regulators to strike the right balance across their strategic objectives; 2013 presents the opportunity for meaningful change and that is something we intend to grasp with both hands.

RAISING STANDARDS


BETTER BUSINESS FINANCE

FOLLOWING ITS LAUNCH in 2010 the Better Business Finance Programme (BBF) continued to go from strength to strength in 2012: continuing its focus on customer relationships, building trust and confidence, ensuring better access to finance and providing better information and understanding.

The BBF has been working hard to help thousands of UK businesses, supporting business growth and confidence through our mentoring program, helping businesses gain finance from alternate providers such as the bank-backed Business Growth Fund and providing guidance on how to export abroad or pitch to a bank when seeking finance. The BBF has also supported the evolution of government business policy (with direct mention in the 2012 Budget and Autumn Statements) and policies important to the business community through the Business Finance Roundtable.

IMPROVING CUSTOMER RELATIONSHIPS During 2012 our mentoring programme has been progressing significantly. We now have over 1,000 bank mentors helping over 1,200 businesses. Mentorsme.co.uk, our online mentoring portal, tripled in size in 2012 now bringing together 115 organisations, giving UK companies access to 27,000 mentors. Mentorsme has become

a recognised kite mark of quality assurance for mentoring and is acknowledged as the ‘place to go’ for business mentoring support. In 2013 we will continue to develop mentorsme.co.uk and continue running our successful ‘meet the mentor workshops’ launching a series of tailored mentoring support programmes such as Export Mentoring Clubs and workshops with the Enterprise Diversity Alliance.

The Lending Code and Principles, launched in 2011, provides UK businesses with the opportunity to appeal lending decisions. Last year saw Professor Russel Griggs OBE, the independent reviewer of the appeals process, publish his inaugural appeals report. The findings of the report showed that more than 2,000 businesses appealed their lending decision, with more than 40% of those appealing being successful and attaining a finance package suitable to their needs as a result of subsequently providing additional information to the bank and discussing the further details of their business.

Moreover, in addition to providing a transparent and fair appeals process for SME’s – helping them access the right funding for their business –the findings from the appeals activity also provided a useful resource for the banks. Information gathered from the appeals process has allowed banks to hone their processes, enabling the industry to develop improved dialogue with business. 2013 will see further work on credit scoring and affordability – the two main reasons for businesses failing to secure finance.

ENSURING BETTER ACCESS

TO FINANCE

Banks remain committed to broadening the sources of finance available to businesses and forging strategic partnerships with a range of alternative finance providers. 2012 saw the Business Growth Fund (BGF), gain traction and complete over 24 investments totaling £100 million. 2013 will see further evolution of the BGF and the intended investment of a further £200 million in growing businesses. In addition the partnership between the BBA, the BGF and the UK Business Angels Association means that entrepreneurs are provided with a wider choice when looking for early stage finance options.

2012 saw the BBF banks pioneer a referral programme with the Community Development Finance Association. This new initiative is designed to enable those businesses which are not suitable for bank finance to be referred to local Community Development Finance providers. Having successfully completed a pilot this will go national in 2013.

The business finance team has worked closely with the Government and Bank of England on the introduction of the Funding for Lending Scheme (FLS) with an online promotional guide to the FLS business offerings available from nine leading BBA members. The BBA Export Committee has also been hard at work with government to deploy the UKEF working capital and bond schemes; it has also collaborated on the Open to Export programme and work is underway for new Export Refinance

BETTER BUSINESS FINANCE— widening access to finance

Irene GrahamMANAGING DIRECTOR, BUSINESS FINANCE AND STRATEGIC INITIATIVES

The BBA is supporting UK entrepreneurship and business growth through the Better Business Finance Programme, which is helping to restore trust and confidence in the banking industry


and Direct Lending Schemes to further help exporters.

Having support tools to gain insight and market knowledge is important to businesses seeking finance. www.betterbusinessfinance.co.uk now has BBF TV with top tips for dealing with your bank and www.businessfinanceforyou.co.uk launched last May with 500 finance providers.

Supply Chain Finance (SCF) came to the fore in 2012. Many banks provide SCF solutions to major companies to help facilitate the finance made available to smaller businesses important in their production lines. The banks were therefore very happy to support the Prime Minister’s SCF campaign and the BBA has now established a regular BBA/Automotive Council Forum to discuss the sector and the needs of its supply chain. We are also examining how we can further support the oil and gas industry and employee owned businesses.

BETTER INFORMATION AND

UNDERSTANDING

Robust research and data must inform sound banking and business policy. Delivering on the commitment to improve transparency, the independently managed BDRC Continental SME Finance Monitor is now seen as the authoritative voice on business finance patterns and trends. With over 25,000 businesses surveyed since its launch we are establishing some clear trends helping focus policy activity. Building on this work, January 2013 saw the launch of the new Enterprise Research Centre which is focused on SME businesses and led by Warwick and Aston Universities. The centre is being funded in a partnership between Barclays Bank plc, HSBC Bank plc, Lloyds TSB Bank plc, Bank of Scotland plc and The Royal Bank of Scotland plc, along with government research groups. Its first strands of work are focussed on entrepreneurial growth, growth intentions, diversity, the role of finance in growth, innovation and exporting.

In 2012 the BBF continued regional events for businesses around the country with the British Chamber of Commerce, and partnered with the ICAEW in a Business Advice Week, as well as rolling out a successful series of MP surgeries with local businesses, bank mentors, and the BBA. These will continue in 2013.

As we move through 2013 evolution of the BBF and business finance policy will continue. We are actively working with business groups on the shape of the Business Bank – the BBA is fully supportive of its objective to be a one stop shop of government business support. We are also working on how Local Enterprise Partnerships evolve; reviewing the development of the CDFI sector; and will soon finalise a review on access to finance for women and ethnic minority entrepreneurs. Work also continues with the accountancy groups on investment readiness.

All of this work has businesses at its heart. In 2013 we will continue our face to face meetings with businesses, listening to their views and explaining the developments in banking and the support available to them. Meeting business expectations relies on listening and responding to business needs, partnering with business groups, alternative providers, professional advisors and government. The Business Finance Roundtable has been an invaluable source of ideas and collaboration and this year its focus will include tackling discouraged demand and market gaps. We look forward to the year ahead as the industry remains committed to helping British business grow and prosper.

“The BBF has been focusing on ensuring better access to finance and providing better information”

BETTER BUSINESS FINANCE

12 — BBA ANNUAL REPORT 2012 WWW.BBA.ORG.UK WWW.BBA.ORG.UK BBA ANNUAL REPORT 2012 — 13

FINANCIAL SERVICES IS an international business and London is an important centre. For that reason the BBA tracks regulatory developments in the US, Japan and Asia as well as in Europe and domestically.

This has become more challenging since the financial crisis. Rules and regulations governing financial services have been reviewed and changed in most countries. Under the auspices of the G20, there has been a significant programme of regulatory change, developed and implemented by the international standard-setting bodies, across all aspects of financial services. The implementation process is now much more focussed at regional and national level and there is a real risk of regulatory fragmentation as the global standards are adapted in slightly different ways. One clear example of the potential difference in national interpretation is that of “ring-fencing”. The recommendation within the Liikanen Report and the UK’s Independent Commission on Banking take a different approach from each other,

The BBA is focusing on the global, macroeconomic regulatory issues, while not forgetting the specifics that make a big difference to banking customers

which is again different from that taken in the Dodd Frank Act. For global firms it has been a difficult and complex process to analyse and implement those differing requirements within their organisations. The process is far from complete. While these legislative initiatives may have similar objectives and overarching vision, they are leading to balkanisation – a fragmentation that is a cause for concern in a global economy because it brings about a less efficient use of capital and liquidity and impact banks’ capacity to lend into global economy and facilitate growth.

Whilst the regulatory landscape has been changing we have also seen significant geo-political changes which have also impacted banks. For example, the “Arab Spring” brought a host of complications for banks operative in the area. International sanctions were imposed and assets frozen. Banks play a key role in

implementing those sanctions, yet at the same time ensuring legitimate global trade is not hindered and humanitarian aid can still reach those in need. The task of asset recovery is still underway throughout the region.

The BBA is an active member of the European Banking Federation (EBF) and we manage the International Banking Federation, whose founding members, the banking associations of the US, Canada, EBF, Australia and Japan, have now been joined by the banking associations from India, China, South Africa, Russia, South Korea and Brazil as Associates. Our close work with all of them enables us to have much greater awareness of global regulatory developments.

For the coming year, the BBA’s international priorities continue to be focussed on the G20 agenda, the risks of regulatory fragmentation, and the global recovery and resolution framework.

THE GLOBAL PERSPECTIVE— the BBA on the world stage

Sally ScuttDEPUTY CHIEF EXECUTIVE

“Rules and regulations governing financial services have been reviewed and changed in most countries”


THE FINANCIAL POLICY and Operations team is engaged in every aspect of the banking reform programme. During 2012 our work has included looking at the institutional changes being made to both the regulatory machinery and the banks themselves. We have engaged with the Parliamentary Commission on Banking Standards (PCBS) following its establishment in the summer of 2012 and have continued with our on-going technical work on financial reporting, corporate governance, tax and financial crime, where the focus is often on international and EU initiatives.

PROMOTING GROWTH

We have been working to ensure that banks can play their part in restoring economic growth. Working alongside regulators and the Government we have been looking at how banking services, such as hedging risk and trade finance in support of SME exports, can continue to be provided within the ‘ring-fencing’ regime being introduced following the recommendations of the Independent Commission on Banking.

We also invested significant time in considering the issues that arose from the Financial Services Bill. This included the Financial Services Authority being divided

into the Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA), and also the establishment of a new Bank of England committee on financial stability – the Financial Policy Committee (FPC) – to stand alongside the Monetary Policy Committee.

A key theme for the BBA during the passage of the Financial Services Bill (now the 2012 Act) was the FPC’s decisions on financial stability to be taken within the context of the Government’s overarching objectives for economic growth and jobs.

RAISING STANDARDS

During 2012 the BBA submitted evidence to the PCBS. Our evidence looked at professional standards, the Better Business Finance initiative, director sanctions, PPI and accounting, audit and tax issues.

At the start of 2013, we also sent supplementary evidence to the PCBS looking at what could be done to raise professional standards in banking – effectively a three-point plan which covered making the approved persons

BANKING REFORMS— promoting growth and raising standards

Paul ChisnallEXECUTIVE DIRECTOR, FINANCIAL POLICY

We are working hard to reform banking for the benefit of the economy, banks and customers. As well as regulatory change, combatting financial crime features high on our agenda


regime work harder, better qualification and training and a code of conduct that would then aim to bring an institutional-level element to ethics and standards.

On the accounting front, much of our time has been spent working with the major UK banks on their disclosure priorities for 2012, including work specifically undertaken in response to recommendations made by the FPC on sovereign debt and loan forbearance. This work was carried out through the BBA Disclosure

Code under which the seven largest UK deposit-takers agree upon key topical and emerging issues to be profiled in their published financial statements.

We also commented upon, and welcomed, the report of the Enhanced Disclosure Task Force, an exercise involving global banks and the investment community facilitated by the international Financial Stability Board.

In taxation, our year was dominated by two areas – the practicalities of the US Foreign

Account Tax Compliance Act (FATCA) and looking at the implications of a Financial Transaction Tax. Our work on FATCA was directed towards seeking international consistency in application to make the requirements as practicable as possible and much of what we do is about taking very complex rules and road testing them.

On financial crime, our time was divided between seeking certainty in the legal and policy framework while laying the foundations for working with the key international bodies in a more effective and strategic manner. As a basis for this approach, we agreed with members a financial crime strategy for 2013 and 2014 that will include the publication of our first annual report on the industry response to financial crime.

“We have been working to ensure that banks can

play their part in restoring economic growth”


ENDING TOO BIG TO FAIL— prudential capital and risk

2012 HAS SEEN BANKS FACING AN AVALANCHE OF

legislation to ensure that the tax payer will never again be called upon to bail out a failing bank – an objective the BBA fully supports. The main legislation in this area has emanated from the Basel Committee on Banking Supervision (BCBS) with a key component of the reforms being Basel III and its more capital, more liquidity framework which is being implemented in the EU via the Capital Requirements Directive and Regulations package (CRD IV/CRR). Monitoring and influencing the CRD IV/CRR reforms through the legislative process was the Prudential Capital and Risk team’s prime focus in 2012.

The BBA has broadly supported the European Commission’s proposals which importantly were closely aligned to the Basel III framework, however there were some causes for concern in the detail of the proposals, and we have spent the last 12 months working to achieve changes to these parts of the legislation.

PREVENTING FORECLOSURES

The most significant of these was successfully campaigning for maintaining the current national discretion to use a 180-day definition of default. The EU’s draft proposals included the proposal for a 90-day definition of default in relation to the calculation of risk-weighted assets for mortgages under the internal-rating based approach to credit risk.

The BBA argued strongly for the maintenance of the current national discretion to use a 180-day definition of default. A 90-day default period would have meant British banks having to find billions of pounds worth of

extra capital, but more importantly a reduced availability of mortgage finance and a more difficult situation for those having problems paying their mortgage. Ultimately, it could have lead to a substantial increase in the number of mortgage foreclosures, which would not only be damaging for society as more people lost their homes but might further dent the image of banks.

PROMOTING LIQUIDITY

The BBA’s arguments on liquidity buffers were also listened to. The BBA has long expressed its concern that good quality retail mortgage backed securities (RMBS) should be included in the Liquidity Coverage Ratio (LCR) buffer and in early 2013 the Basel Committee on Banking Supervision (BCBS) revised its approach and included RMBS in the LCR buffer. In addition some of the inflow and outflow assumptions were revised to reflect actual experience and it was decided to phase in the quantitative requirements in the run up to 2019, mirroring the approach for increased capital, all of which were helpful developments.

RECOVERY PLANNING

The BBA strongly supports recovery planning and has been working with the FSA, EBA and engaging in the EU’s legislative process to ensure that even the largest banks can fail without contaminating the rest of the financial system. During 2012, we continued to emphasise that prior to the point of non-viability (at which point the resolution authority takes over), management of the banking group remains firmly the responsibility of the board and senior management. For this reason we have resisted calls for recovery plans to be prepared at the level of each subsidiary of the banking group, while supporting generally the objectives of the Recovery and Resolution Directive.

Having listened to industry concerns the UK tax authority revised its approach to clarify that a general warning in the prospectus of a Tier 2 capital instrument may be subject to a statutory bail-in (a likely outcome of the Recovery and Resolution Directive) would not make the instrument ‘results dependent’, so that it will continue to be tax deductible.

Our work with Europe makes legislation on capital and risk implementable, as shown in our approach to the Capital Requirements Directive

Simon HillsEXECUTIVE DIRECTOR, PRUDENTIAL CAPITAL AND RISK

“The BBA strongly supports recovery planning and has been working with the FSA, EBA and engaging in the EU’s legislative process to ensure that even the largest banks can fail without contaminating the rest of the financial system”


THE BBA IS DISTINCTIVE amongst London-based sell side trade associations in its ability to represent, in a technically informed way, the views of banks and investment fi rms that operate within London’s global fi nancial centre, without the need to also accommodate views emanating from other potentially divergent market traditions and regulatory jurisdictions. The breadth and depth of experience of our members allows the BBA not just to highlight unintended consequences of legislative decisions, but also to present alternative solutions to policy makers on how to achieve regulatory objectives that also work for the users of the market such as investors and companies.

The European Commission’s review of the Markets in Financial Instruments Directive (MiFID) is an example of how the BBA has worked to present solutions that meet both the public policy needs of regulators and the commercial needs of users of London’s markets. The original MiFID was implemented in 2007 just before the fi nancial crisis. The intention was always that the legislation would be reviewed and updated once there was experience of how it had been implemented. However, once the crisis hit it was probably inevitable that the review would be broader in scope than had initially been envisaged. The result was the Commission’s Proposal for an extensively revised Directive (MiFID II), with certain aspects dealt with in an accompanying, directly applicable, Markets in Financial Instruments Regulation (MiFIR), both released in October 2011, after a long

period of consultation. Despite extensive debate since then in both the European Parliament and in the Council, at the time of writing there is as yet still no agreement on MiFID II and MiFIR at the ‘Level 1’ stage of the legislative process, and important divergences remain between the EU institutions. Agreement is expected during 2013, though a further process of ‘Level 2’ legislative detail will ensue, along with the drafting of detailed technical standards by ESMA, so a complete revision of the body of EU rules in this area is some way off.

During 2012 the BBA has been working with members to understand how MiFID II and MiFIR will affect their activities and services to clients. Our members welcome much of what is included in the MiFID II and MiFIR proposals such as greater protection for investors, open access to post trade infrastructure and better market transparency, but members also have concerns that certain elements of the proposed rules could have a negative impact on investor choice and on the liquidity and depth of European capital markets, and so be detrimental to the European and worldwide users of London’s global capital markets, such as corporates seeking to raise capital to invest and create jobs and investors looking for real returns.

We emphasised to EU policy makers that the vision of the original MiFID should be maintained in order to assist European economic recovery and to maintain the EU’s central role in the international marketplace: by promoting more competition and the benefi ts of the single market whilst ensuring high standards of investor protection. While MiFID opened access to the markets, the MiFID II and MiFIR proposals aim also to open up access to central counter-party operations and benchmarks. In the interests of competition that benefi ts market users, the BBA agrees that it is important to promote and maintain open access to market infrastructures. Protectionism should have no place in the Single Market.

Given London’s position as the centre of global fi nance, one of the biggest concerns was the proposal to place restrictions on the ability of fi rms based in third-countries (countries outside the EU) to participate in European markets. Europe’s openness to third-country investors, issuers, intermediaries, and other users of its fi nancial markets is a key component of European prosperity, growth, and recovery from economic turmoil. The BBA supports an EU regulatory regime for third country fi rms which builds on existing arrangements that serve

The BBA’s response to the Markets in Financial Instruments Directive demonstrates how we offer informed advice to legislators

MIFID II AND MIFIR— an opportunity to consolidate a well regulated single market

Sally SpringerSENIOR DIRECTOR, CAPITAL MARKETS


Europe well. We are keen to avoid heavy restrictions on the ability of EU market participants to undertake business with the rest of the world. We need to avoid harming EU investors, EU issuers, and the global appeal of EU fi nancial markets by creating silos of capital markets, locking third country fi rms out of the EU Markets, or damaging the responsiveness of European fi nancial markets, in the City of London or elsewhere. The BBA has pushed strongly for an enlightened approach in this area.

A third area of concern relates to the proposed extensive reform of market regulation. MiFID II and MiFIR propose to impose trading rules on a wider range of organised trading, and to extend MiFID’s existing trading transparency rules from shares to cover bonds and derivatives. These rules need to be carefully adapted and calibrated to take account of the different and diverse trading practices and liquidity characteristics of these instruments.

It is vital to have a strong UK voice in Europe’s post-trade space, especially in light of the fundamental reforms now shaking up this once ignored area of the market. Throughout this most challenging of years for the post-trade sector, the BBA has consistently proved itself one of British industry’s most effective advocates. Whether focused on the UK and the wider Europe Union and beyond, the BBA has pursued the interests of our members without fear or favour.

Nowhere is this more apparent than with the European Market Infrastructure Regulation (EMIR), a ground-breaking legislative reform that promises to change the post-trade landscape forever. Birthed in the wake of the fi nancial crisis

CAPITAL MARKETS

as a set of G20 commitments, EMIR’s central premise is the introduction of mandatory clearing for over-the-counter (OTC) derivatives, coupled with the compulsory reporting of all derivative transactions.

Following a protracted journey through the European Union’s legislative processes, the end of 2012 fi nally saw EMIR move from conception to implementation. Constantly engaging with policy makers as they considered the tangible consequences of their proposals, the BBA proactively worked to help the authorities achieve their policy goals through the provision of detailed legal, technical and operational information when needed. This involved undertaking timely critical analysis of EMIR’s provisions and then serving as a conduit between industry and policy makers at key moments.

The ramifi cations of EMIR for banks and the wider economy cannot be understated; it affects both fi nancial counterparties (everything from banks to buildings societies and insurers) and non-fi nancial counterparties alike, the latter including those crucial businesses which engage in derivatives trading for risk-mitigation purposes. For the likes of BP, Shell, Rolls Royce and Siemens - to name just a few - EMIR presents a new and unfamiliar set of challenges. There is a growing awareness of the potential role our members can play in helping these fi rms meet their new obligations, drawing on our experience in trade reporting, clearing and risk-mitigation techniques, but much work still needs to be done.

While 2012 did see the clarifi cation of many of industry’s outstanding questions, the long term consequences of EMIR remain to

be seen, not least of all the wider question of what will be its effect on the availability of high quality, liquid collateral. Concerns remain that the EMIR’s need for high quality collateral will drive its costs, so high that real economy fi rms could be priced out of the market. For those companies who use derivatives to hedge their risks, (such as to mitigate against currency fl uctuations), EMIR may drive the cost of collateral beyond the reach of many real economy companies. This may have the perverse result of actually inducing more risk as companies chose not to make use of derivatives.

Another area of concern is that while there has been some coordination across G20 nations, there has been nowhere near enough. The BBA has constantly pushed policy makers to ensure there is consistency in regulatory outcomes, but higher political imperatives have seen a slow but inexorable drift apart in a number of areas.

Going forward, despite EMIR’s complexity, the BBA is working hard to assist industry as it grapples with implementation, not least of all by utilising our regulatory relationships to secure concrete answers to the question of what compliance will look like. We are assisting companies to develop processes that facilitate the easier implementation of these provisions, and helping the wider economy come to terms with the fundamental changes occurring in the post-trade space. Finally, we are continuing to engage with policy makers, regulators and competent authorities as EMIR’s obligations take effect. All these activities will continue throughout 2013, with the BBA working to further member’s interests.

“It is vital to have a strong UK voice in Europe’s post-trade space”

DURING THE LAST year the Legal and Insolvency team at the BBA has been working on a broad range of issues including improving banks’ estate administration services for customers, engaging with the EU on cross-border insolvency issues and looking at the proposed amendments to the European Insolvency Regulation 2000.

In the course of 2012 the BBA agreed a protocol with the Law Society and the Society of Trust and Estate Practitioners (STEP) on the exchange of information between banks and solicitors following the death of a bank customer. The aim is to prevent unnecessary delays and uncertainties when administering a deceased customer’s bank accounts, relieving relatives of unnecessary stress at a very difficult time.

Also, following certain issues raised last year by the Legal Services Board (LSB) on the provision of

will writing and estate administration services, the BBA has been working closely with the LSB on the possibility of developing a customer-focused code of practice for banks’ estate administration services.

On the European front, the BBA was active on draft EU legislation that proposed a mechanism for the cross-border freezing of bank accounts (where a party in one member state considers that it is owed money by an individual or firm in another member state). A key concern in our representations had been that any such process must be balanced with banks’ customers having a reasonable degree of

protection where their accounts are targeted.

Along with various other parties, the BBA’s recommendation to the Ministry of Justice was that the UK should opt out of the proposal pending negotiations in the European Council and the European Parliament. This course of action was adopted and the BBA continues to brief Ministry officials on a regular basis as discussions proceed in the Council working group.

The BBA also responded to a call for evidence by the Insolvency Service looking for views on whether the UK should opt in to, or out of, the proposal by the European Commission amending the European Insolvency Regulation 2000, which contained rules on jurisdiction and applicable law for insolvencies with a cross-border dimension.

By common consent the regulation has generally worked well. One of the main changes proposed by the Commission is to extend the scope of the regulation to cover pre-insolvency restructuring proceedings. Following consultation with members the BBA has recommended that the UK should opt in to the proposal.

LEGAL AND CORPORATE INSOLVENCY ISSUES— the state of play

Roger BrownEXECUTIVE DIRECTOR, TRADE POLICY AND LEGAL

“A key concern in our representations had been that any such process must be balanced with banks’ customers having a reasonable degree of protection where their accounts are targeted”


IF THE BANKING INDUSTRY is to demonstrate how well it supports economic growth and that standards are improving, then data and statistics will be at the heart of it. The City – and the wider economy – are built on numbers and the BBA is respected worldwide when it comes to detailed and accurate banking information.

The BBA publishes regular statistical bulletins based on data from its members. These are read widely around the globe. So much is changing in the banking industry that the BBA’s statistics form the basis for evidence-based policy and also evidence-based monitoring of banking – two areas that are growing exponentially. We have become almost an official statistics producer, not least with our annual Abstract of Banking Statistics.

AN AUTHORITATIVE VOICE

One consequence of this is that the BBA is often able to set the record straight. To give an example, over the course of 2012, the political focus and media interest were centred on retail banking and SMEs.

What we have found consistently over the past two years is that SMEs have had a reduced appetite for new lending. Given the lack of consumer demand in the UK, they have tended to postpone their investment plans as they look to reduce dependency on external finance and to operate out of cash flow.

INFORMING THE DEBATE— producing clear and accurate statistics

As such, the amount of new lending given to SMEs is largely being offset by the amount of lending coming back, so the net lending position is very flat – something the media interpreted as ‘banks are not lending’. That is incorrect and it is a message that we have put out repeatedly. It is simply the economy-driven behaviour of SMEs, and also households, to bear down on debt.

The BBA also commissioned independent research to look at the supply of finance from all sides, examining attitudes, behaviours and opinions about accessing internal finance. With this information at our fingertips, we can start to look at service delivery, the products that have been offered and alternative products that may be more appropriate to SMEs.

ROBUST PROCESSES

We have also continued our valuable work with the GOLD consortium. Every banking institution faces inherent risks. Whether it is employees who mis-perform, or who are fraudulent, internal systems are liable to be compromised by staff. Systems can also be compromised by IT failures, even to the extent that banks are unable to make payments. Then there are external factors, such as criminals taking over identities and making fraudulent payments on cards.

Banks also have to ensure their processes are robust – knowing the customer and making the appropriate investment advice, for example. We have seen with PPI how it is possible to get it wrong. Then there are events like arson and floods that can take out branches or even a region. If you don’t have the appropriate mitigating factors in place, in terms of insurance and business continuity models, then you will lose transactions, business and face all the associated reputational risks.

GOLD allows member banks to

pool such information anonymously. Members of the consortium can look at what is happening elsewhere and make assessments about their own internal controls. It allows members to benchmark themselves against their peers and in doing so it improves the system, protecting individuals, companies and banks.

The BBA also co-ordinates real-time national information and analysis for banks and other industry forums, law enforcement agencies, ATM operators and cash carriers – to react collectively to physical threats to the safe provision and custody of cash through the branch and ATM networks.

IMPROVING STANDARDS

Another big issue for us is data. The BBA has been in discussions with various stakeholders to determine where greater transparency could be afforded to the SME market and what could be published without breaching normal confidentiality rules.

Members are also aware that over the coming months there will be more information collected about overseas transactions. There will be a breakdown into the type of transaction, whether a bank, individual or a business, all designed to improve the knowledge of overseas exposure of lending and deposit taking. Again, the BBA has played a key role in reflecting member views to the central bank.

An in-depth knowledge of the minutiae of the banking world underpins the drive to further improve industry standards, protect consumers and stimulate the economy. The BBA has a well-deserved reputation as an authoritative voice when it comes to statistics and we will continue to work hard throughout 2013 to maintain our high standards and inform debate.

David DooksDIRECTOR, STATISTICS

Robust and transparent data uphold our reputation as the authoritative voice of banking. Our statistics form the basis of evidence-based policy and monitoring of the industry

20 — BBA ANNUAL REPORT 2012 WWW.BBA.ORG.UK WWW.BBA.ORG.UK BBA ANNUAL REPORT 2012 — 21

“An in-depth knowledge of the minutiae of the banking world

underpins the drive to improve standards, protect consumers

and stimulate the economy”


BBA ENTERPRISES

Jason ColeCOMMERCIAL DIRECTOR, BBA ENTERPRISES

BBA ENTERPRISES— value for money

BBA Enterprises is the commercial arm of the BBA. Its well-attended events, associate-member programme, third-party venue hire, training workshops and publication businesses have all enjoyed a successful year

FOR BBA ENTERPRISES, one event from 2012 stands out above all the others: the hosting of the Annual International Banking Conference in October. Even at 5pm, a time when delegate numbers can sometimes start to drop, the room was still packed with more than 300 banking delegates and 100 press and media.

Among the guest speakers were Paul Tucker, Deputy Governor at the Bank of England, John Cridland, Director-General of the CBI, Mark Morris, Finance Director at Rolls-Royce and Martin Wheatley, CEO of the Financial Conduct Authority. The day culminated with the chairmen of the big five banks on stage together for a panel interview.

Other notable speakers during 2012 included Kay Swinburne MEP at the MiFID Conference, Paul Fisher the Bank of England’s Executive Director for Markets at the Annual Liquidity Conference, and Mario Nava, Director General, Internal Market, European Commission, at our

CRD IV and Basel III seminar in December. We also held our ninth annual security conference, which again was very well attended.

From our banking members we saw 1,750 delegates attend more than 30 events over the course of 2012. We also earned sponsorship revenue from 31 sponsors. Generating revenue is important as it means we’re not only dependent on subscription fees and can even subsidise them to some extent.

‘NEED TO KNOW’

Our role is to support the work of the BBA and the integrity of our programme is very important to us. An important feature of our conferences is that they are built around information that is ‘need to know’ rather than ‘nice to know’. If the material can be covered in a briefing, it will only be a briefing. Likewise for our seminars and conferences.

Ultimately, we are a membership organisation and when our members tell us what they need to know, we deliver that content – and only that content – whether it relates to Fatca, Dodd-Frank, liquidity, cyber crime or corruption within banks. We also monitor feedback carefully and have achieved our target of being consistently rated at more than 4.5 out of 5 by delegates on our content, speakers, venue and catering. However, hosting conferences is just one of our core business units, along with our associate-member programme, third-party venue hire, training workshops and publications.

Associate membership has been another growth area. It covers a wide range of companies, such as law firms, management consultancies and technology

companies. It includes KPMG, Deloitte, Logica, IBM and Tata, to name just a few. We also have a group of banking associates, companies that don’t hold a banking licence but who are not too far removed from being banks.

VALUE FOR MONEY

We held four private round-table dinners, two discussing government affairs, one on social mobility and one on regulatory risk, attended by senior-level bankers. We ran 65 training workshops in 2012, five more than in 2011. More than 1,200 delegates attended the workshops, which covered areas such as corporate governance in FSA-regulated firms, operational risk/Basel III and money-laundering risk officer masterclasses. In addition, we also offer eight e-learning modules that span things such as governance, risk and retail banking issues.

Another important service that BBA Enterprises provides is publications. More than 18 million were sold last year. This is mostly leaflets responding to customer demand and destined for front-of-house in banks, such as for when customers open a new bank account. Every year we work to produce a broad range of publications, from the BBA’s annual abstract, packed with statistical data, to a lending code for SMEs, which looks at the key lending issues and their recourse if they are turned down for credit.

The work of the commercial arm of the BBA shows good value for money in these challenging times as we address the concerns and needs of our members, associate members, industry and consumers.


“Generating revenue is important as it means

we’re not only dependent on subscription fees”

BBA ENTERPRISES

24 — BBA ANNUAL REPORT 2012 WWW.BBA.ORG.UK24 — BBA ANNUAL REPORT 2012 WWW.BBA.ORG.UK

MEMBER LIST

MEMBER LIST— who we work for

MEMBER BANKS

ABC International Bank plc

Ahli United Bank (UK) Ltd

Aldermore Bank plc

Allied Irish Bank (GB)/First Trust Bank

– (AIB Group (UK) plc)

Allied Irish Bank plc

Alpha Bank London Group TOTAL

AMC Bank Ltd

Ansbacher & Co Ltd

Australia & New Zealand Banking

Group Ltd

Arab National Bank

Arbuthnot Latham & Co, Ltd

Banca Monte dei Paschi di Siena SpA

Banco Bilbao Vizcaya Argentaria SA

Banco de Sabadell

Banco Santander Group TOTAL

Bangkok Bank Public Company Ltd

Bank J Safra (Gibraltar) Ltd

Bank Leumi (UK) plc

Bank of America Group

Bank of America NA

Bank of Baroda

Bank of Ceylon

Bank of China

Bank of Cyprus Public Company Ltd

Bank of India

Bank of Ireland

Bank of London and the Middle East

Bank of Montreal

Bank of Nova Scotia Group

Bank of Tokyo Mitsubishi UFJ Limited

Barclays Bank Group

BLOM BANK France

BMCE Bank International

(formerly MediCapital Bank Ltd)

BNP Paribas Group

Britannia Building Society

British Arab Commercial Bank Ltd

Brown Shipley & Co Ltd

Butterfield Bank (UK) Ltd

C Hoare & Co

CAF Bank Ltd

Canadian Imperial Bank of Commerce

Group TOTAL

Canara Bank

Cater Allen Ltd

China Construction Bank

Citibank NA Group

Close Brothers Ltd

CLS Bank International

Clydesdale Bank plc

Commerzbank AG

Commonwealth Bank of Australia

Co-operative Bank Group (inc

Britannia)

Coutts & Co

Credit Agricole Corporate and

Investment Bank

Credit Industriel et Commercial

Credit Suisse Group

Credit Suisse International

Crown Agents Bank Ltd

Danske Bank A/S Group

Deutsche Bank group

Duncan Lawrie Ltd

EFG Private Bank Ltd

Egg Banking plc

Europe Arab Bank plc

European Islamic Investment

Bank plc

FBN Bank (UK) Ltd

FCE Bank (Ford Credit Bank)

FIBI Bank (UK) Ltd

Fortis Bank SA/NV

Ghana International Bank plc

Gulf International Bank BSC Group

TOTAL

Habib Allied International Bank plc

Habib Bank AG Zurich

Habibsons Bank Ltd

Hampshire Trust plc

Harrods Bank Ltd

Havin Bank Ltd

HBOS

HSBC Bank Group

HSBC Private Bank Limited

ING Bank NV

Investec Bank (UK) Ltd

Irish Bank Resolution Corporation Ltd

(formerly Anglo-Irish Bank Corporation)

Islamic Bank of Britain

JP Morgan Europe Ltd

Jordan International Bank plc

JP Morgan Chase Bank Group

Julian Hodge Bank Ltd

KBC Bank NV (London Branch)

Kingdom Bank Ltd

Kleinwort Benson Private Bank Ltd

Lloyds Banking Group

Marfin Popular Bank Public Company Ltd

Mashreqbank PSC

MBNA Europe Bank Ltd

Metro Bank

Mitsubishi UFJ Trust and Banking

Corporation

Mizrahi Tefahot Bank Limited

Mizuho Corporate Bank Ltd

Mizuho International plc

Morgan Stanley International Ltd

N M Rothschild & Sons Ltd

The following list details every member bank, professional associate and banking associate member of the BBA.


MEMBER LIST


Nacional Financiera SNC

National Australia Group

National Bank of Canada

National Bank of Egypt (UK) Ltd

National Bank of Greece SA

National Bank of Kuwait

(International) plc

Nationwide Building Society

Natixis

NED Bank

Nomura Bank International plc

Northern Bank Ltd

Punjab National Bank

Qatar National Bank SAQ

QIB (UK) plc (formerly European

Finance House)

R Raphael & Sons

Rabobank International (Coöperatieve

Centrale

Raiffeisen-Boerenleenbank BA)

Rathbone Investment Management Ltd

Reliance Bank Ltd

Royal Bank of Canada Group

S G Hambros Bank & Trust Ltd

Sainsbury’s Bank plc

Santander UK Group

Schroder & Co Ltd

Scotiabank Europe plc

Secure Trust Bank plc

Shawbrook Ltd (formerly Whiteaway

Laidlaw Bank Ltd)

Smith & Williamson Investment

Management Ltd

Société Générale Group

Standard Bank plc

Standard Chartered Bank

State Bank of India

State Street Bank and Trust Company

Sumitomo Mitsui Banking Corporation

Europe Ltd

Svenska Handelsbanken AB

Syndicate Bank

TD Waterhouse Bank NV

Tesco Personal Finance plc

The Bank of New York International Ltd

The Bank of New York Mellon Group

The Bank of Nova Scotia Group

The Charity Bank Ltd

The Co-operative Bank plc

The Norinchukin Bank

The Northern Trust Company

The Royal Bank of Scotland Group

The Sumitomo Trust & Banking Co Ltd

Triodos Bank

UBS AG

Union Bancaire Privee

Union Bank UK plc

United National Bank Ltd

United Trust Bank Ltd

Unity Trust Bank plc

Virgin Money

VTB Capital plc

Weatherbys Bank Ltd

Wells Fargo Bank, NA

Wesleyan Savings Bank Ltd

Westdeutsche ImmobilienBank

Westpac Banking Corporation

BANKING ASSOCIATES

Bank of England

Bankers Almanac

Callcredit Ltd

Equifax Ltd

Experian Ltd

Hewlett-Packard International Bank

Hitachi Consulting

HP Services

ICICI Bank UK plc

ING Direct (UK) Ltd

Isle of Man Bankers’ Association

Jersey Bankers Association

National Savings & Investments

Post Office Ltd

Premier European Capital Ltd

PROFESSIONAL ASSOCIATES

Accenture

ACI Worldwide

ADT Security

Allen & Overy LLP

avantage

BDO Services Ltd

Business Control Solutions

Clifford Chance LLP

Cognizant

Corero Network Security

DBRS Ratings Ltd

Deloitte

DLA Piper LLP

Ernst & Young LLP

Eversheds

Exasoft plc

Farrer & Co.

Freshfields

G4S Cash Services Ltd

Herbert Smith Freehills

Hogan Lovells

Huntswood CTC

IBM UK Ltd

Innovative Systems Inc

Kinetic Partners

KnowCo Ltd

KPMG

Linklaters

CGI

Mayer Brown

Morton Fraser Solicitors

Norton Rose LLP

Ordnance Survey

Pannone LLP

PricewaterhouseCoopers

Protiviti

Qivox Ltd

Shearman & Sterling

Sidley Austin

SJ Berwin

Slaughter & May

Sungard

Tata Consulting Services Ltd

Vocalink

Wolters Kluwer

Wragge & Co

Note: Where member banks are listed as a group they are representative of more than one entity.

FINANCIAL STATEMENTS 2012


COUNCIL’S RESPONSIBILITIES

The Council is responsible for the preparation of financial statements, in accordance with UK Generally Accepted Accounting Practice, which give a true and fair view of the state of affairs of the Association and of its income and expenditure account. In preparing the full financial statements, the Council has:

selected suitable accounting policies and applied them consistently;made judgements and estimates that are reasonable and prudent;followed applicable UK accounting standards; andprepared the financial statements on the going concern basis.

The Council is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Association. The Council is responsible for safeguarding the assets of the Association and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

So far as the Council at the time the report is approved is aware:

1) there is no relevant audit information of which the auditors are unaware; and2) the Council has taken all steps that ought to have been taken to make itself aware of any relevant audit information and to establish that the auditors are aware of the information.

BRITISH BANKERS’ ASSOCIATION

Sir Nigel Wicks Anthony BrowneCHAIRMAN CHIEF EXECUTIVE

Year to 31 December

2012 £'000

Year to 31 December

2011 £'000

INCOME

Subscriptions 6,222 6,094

Other income 2,452 2,548

Sales of publications and conferences 1,188 1,301

Bank interest 104 67

9,966 10,010

EXPENDITURE 9,549 9,428

Excess of income over expenditure before finance charges 417 582

FINANCE CHARGES (88) (76)

Excess of income over expenditure after finance charges and before taxation 329 506

TAXATION (146) (211)

Excess of income over expenditure after taxation transferred to Accumulated fund 183 295

CONSOLIDATED INCOME AND EXPENDITURE ACCOUNTfor the year ended 31 December 2012

(incorporating BBA Enterprises Ltd and BBA LIBOR Ltd): Extracts from Audited Consolidated Financial Statements for the year ended 31 December 2012

Ratified at an AGM of the British Bankers’ Association on Thursday 25 April 2013

Approved



Note31 December 2012

£’00031 December 2011

£’000

Tangible fixed assets 1(f) 364 393

CURRENT ASSETS

Stock 9 21

Debtors 2 7,585 2,868

Cash at bank and in hand 5,153 5,144

12,747 8,033

CREDITORS: Amounts falling due within one year 3 (7,791) (2,926)

NET CURRENT ASSETS 4,956 5,107

TOTAL ASSETS LESS CURRENT LIABILITIES 5,320 5,500

PROVISIONS FOR LIABILITIES AND CHARGES

Deferred taxation (6) (6)

Dilapidation Provision (436) (409)

NET ASSETS EXCLUDING POST RETIREMENT BENEFITS LIABILITY 4,878 5,085

Post-retirement benefits liability (1,458) (1,419)

NET ASSETS 3,420 3,666

STATEMENT OF ACCUMULATED FUND

Accumulated Fund at 1 January 2012 3,666 3,775

Statement of Total Recognised Gains and Losses (STRGL) (429) (404)

Excess of income over expenditure 183 295

Accumulated fund at 31 December 2012 3,420 3,666

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (STRGL)

Actuarial Gain/( Loss) (556) (481)

Deferred Tax 127 77

(429) (404)

CONSOLIDATED BALANCE SHEETat 31 December 2012

The 2012 full financial statements are available at: www.bba.org.uk/financials



EXTRACTS FROM THE NOTES TO THE FINANCIAL STATEMENTS– 31 December 2012

1. ACCOUNTING POLICIES

The financial statements have been prepared in accordance with UK GAAP. The particular accounting policies adopted are described below.

A) GOING CONCERN BASISThe accounts are prepared on the basis that the members will continue to support the Association. The Association believes that its level of accumulated reserves is adequate for its continued operation.

B) STOCKStock is valued at the lower of cost or net realisable value.

C) TURNOVERTurnover consists of the invoiced value (excluding VAT) for goods and services supplied in the period.

D) ACCOUNTING CONVENTIONThe financial statements are prepared under the historical cost convention.

E) SUBSCRIPTIONSIn accordance with the Rules of the Association, subscriptions payable by members are determined to cover the budgeted level of expenditure of the Association including taxation. F) DEPRECIATIONDepreciation is provided on fixed assets in equal annual amounts over the estimated lives of the assets. The rates of depreciation are as follows:

Fittings 10% per annumFurniture 20% per annumOffice equipment and computers 33% per annum

G) PENSION COSTSDuring the period, the group contributed to a defined benefit pension scheme. The assets of the scheme are invested and managed independently of the finances of the group. Contributions are assessed in accordance with the advice of an independent qualified actuary.

The scheme is a multi-employer scheme and because the group is unable to identify its share of the underlying assets and liabilities on a consistent and reasonable basis, the pension contributions are accounted for as if the scheme were a defined contribution scheme. Therefore, the pension cost for the scheme represents contributions payable by the group in the period. The scheme was closed to future accrual on 30 June 2010.

The group also contributes to a nominated stakeholder compliant pension scheme. This was open during the period to all employees who were not active members of the defined benefit scheme. The pension costs for those arrangements represent contributions payable by the group in the period.

H) POST-RETIREMENT BENEFITSThe Association provides post-retirement health care to certain employees in retirement. The amounts charged to operating profit are the current service costs and gains and losses on settlements and curtailments. They are included as part of staff costs. Past service costs are recognised immediately in the income and expenditure account if the benefits have vested. If they have not vested immediately, the costs are recognised over the period until vesting occurs. The interest cost and the expected return on assets are shown as a net amount of other finance costs or credits. Actuarial gains and losses are recognised immediately in the statement of total recognised gains and losses.

Post retirement benefit liabilities are measured on an actuarial basis using the projected unit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term to the scheme liabilities.

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The actuarial valuations are obtained at least triennially and are updated at each balance sheet date. The resulting scheme asset or liability net of the related deferred tax is presented separately after other net assets on the face of the balance sheet.

The company has adopted FRS17 to account for post retirement benefits.

I) TAXATIONThe payment of taxation is deferred or accelerated because of timing differences between the treatment of certain items for accounting and taxation purposes. Full provision for deferred taxation is made under the liability method, without discounting, on all timing differences that have arisen, but not reversed by the balance sheet date, unless such provision is not permitted by Financial Reporting Standard 19.

The company has adopted FRS19 to account for deferred tax.

J) OPERATING LEASESRentals on operating leases are spread over the life of the lease on a straight line basis even if the payment pattern is irregular due to receipt of incentives such as rent free periods.

K) BASIS OF CONSOLIDATIONThe Association accounts consolidate the accounts of the Association and its subsidiaries, BBA Enterprises Ltd and BBA LIBOR Limited, drawn up to 31 December 2012. In common with companies governed by the Companies Act, the Association has not presented its own profit and loss account. The net profit after taxation of the Association was £421,000 (31 December 2011: £10,000).

L) DEFERRED INCOME AND EXPENDITUREIncome and expenses are accounted for on an accruals basis and only relate to the period of the accounts. Deferred income and expenses are carried forward.

2. DEBTORS



Scheme liabilities £47.3m

Scheme assets £33.7m

(Deficit) (£13.6m)

Funding level 71%

Included in trade debtors are member subscriptions billed in advance of £3,941,000 (2011:nil ). Included in prepayments and accrued income are prepaid service charges of £58,000 (2011: £63,000).

Included in accruals and deferred income are member subscriptions billed in advance of £3,941,000 (2011:nil ).

3. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

As at 31 December 2012

£’000


£’000

Trade debtors 5,577 1,211

Prepayments and accrued income 2,008 1,657

7,585 2,868

The employers have agreed to eliminate the Scheme deficit by making total annual contributions of £1,964,000, payable for 9 years. These contributions are being paid in two equal instalments each year (in August and the following February) with the first payment having been made in August 2010. The payments are shared between the Association and UK Payments Administration Limited in the ratio 35:65. The employers also meet the costs of administration, investment management and any insurance


£’000


£’000

Trade creditors 1,387 828

Corporation tax payable - 154

Accruals and deferred income 6,404 1,944

7,791 2,926

EXTRACTS FROM THE NOTES TO THE FINANCIAL STATEMENTS– 31 December 2012 (Continued)

4. PENSION ARRANGEMENTS

THE BRITISH BANKERS’ ASSOCIATION Pension Scheme is operated on behalf of the Association and UK Payments Administration Limited.

The Scheme, which is closed to the future accrual of benefits, is a funded defined benefit scheme and provides benefits based on final pensionable pay and the period of pensionable service completed up to 30 June 2010. The contributions are determined by the Trustees of the Scheme and the employers, after receiving advice from the Scheme Actuary, on the basis of triennial valuations.

The most recent triennial valuation was carried out as at 31 March 2009 under the Scheme Funding regulations. Details of the valuation are shown below.



Analysis of pension charges:

Year to 31 Dec 2012 £’000

Year to 31 Dec 2011 £’000

Additional pension contributions 345 687

345 687

5. BBA LIBOR LIMITED

FOLLOWING THE UK GOVERNMENT’S acceptance of the Wheatley Review in Autumn 2012, BBA LIBOR Limited has agreed to enter into discussions to transfer the administration of BBA LIBOR to a bidder to be recommended by a Committee appointed by the Government, chaired by Baroness Hogg, to manage the tender process (to ensure its independence).

That tender process is currently underway and expected to conclude in summer 2013 with a recommendation from the Hogg Committee to BBA LIBOR Limited with a view on the party to whom the administration of BBA LIBOR should be transferred. The process involves an understanding of the capabilities of potential transferees to meet the Financial Conduct Authority’s

requirements to be a fit and proper person to administer the benchmark in the future, and will be judged on a competitive basis.

It is the expectation of BBA LIBOR Limited that following such a recommendation and final negotiation of transfer documents, a period of transition will then ensue, with formal transfer to take place not before September 2013.

The BBA believes that its level of accumulated reserves is adequate to support its obligations in relation to the Hogg Committee.

6. CONTINGENT LIABILITIES

ON 14 MARCH 2013, the BBA, BBA LIBOR Ltd and BBA Enterprises Ltd were joined into civil proceedings commenced in the United States against a number of contributor banks, by The Federal Home Loans Mortgage Corporation, claiming damages in respect of the alleged manipulation and suppression of US$ LIBOR. The amount of damages claimed is not quantified and is not quantifiable at this stage.

premiums payable. The position will be reviewed at future actuarial valuations.

The Association’s contributions are affected by a surplus or deficit in the Scheme but the Association is unable to identify its share of the underlying assets and liabilities in the Scheme on a consistent and reasonable basis. Consequently, in accordance with Financial Reporting Standard 17, the Association accounts for the contributions to the Scheme as if it were a defined contribution scheme.

www.bba.org.ukBritish Bankers’ AssociationPinners Hall, 105-108 Old Broad Street, London, EC2N 1EXUnited Kingdom

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