New banking rules are fatally flawed

November should mark a brighter dawn for all of us with a bank account. That it will probably do little to curb the banks’ bad behaviour will be yet another black mark on the stained copybook of the Financial Services Authority (FSA).
The first of the month is when the chief City watchdog will take over the policing of retail banking. The Banking Code, the cosy system of self-regulation that has allowed poor service and bad practice to flourish, will be consigned to the dustbin.
Few will mourn its passing, as tighter regulation is long overdue. But what is the point of replacing a broken system with a replacement that looks fundamentally flawed?
When the FSA announced that it was taking over banking regulation, it promised greater transparency for consumers. A noble goal, but one that, on November 1, it will singularly fail to achieve. There are few things to commend the Banking Code but, in its favour, it is clear and easy to understand. At 37 pages of large print, you can just about absorb it in a single sitting.

Under the new regime, the code will be replaced with three separate directives. I can’t be the only one to think that one into three sounds like a recipe for befuddlement. The FSA will oversee two of the strands — the Banking: Conduct of Business Sourcebook and the Payment Services Directive. These broadly cover how banks deal with customers with cash deposits. Overdrafts, loans and credit cards will continue to be policed by the Banking Code Standards Board in its new guise of the Lending Standards Board.
If you are keen to acquaint yourself with the rules, prepare for more than 100 pages of the finest legalese. The FSA has promised to publish reader-friendly guides before the November deadline, but this week was unable to confirm when.
Why do we need three sets of rules in any case? This cobbled-together compromise results from a decades-old division between the regulation of banking and credit that should have been binned long ago.
It is a shame, because the new rules contain some good ideas. In fraud cases banks will have to prove that the customer was at fault. Currently the onus is on customers to prove that they did nothing wrong. Another positive move will require banks to give most customers two months’ notice of any interest rate changes.
The FSA will also be able to fine banks and building societies that fail to treat customers fairly — although that has not proved a deterrent to bad behaviour in the past. It may stop the big institutional abuses, but many more cases will continue to slip through the net.
All in all, this looks like a missed opportunity to swing regulation decisively in the customer’s favour.
Aviva’s radical pensions proposal may be a winner
Radical thinking on pensions is the order of the day. But amid all this week’s hoo-ha about Tory plans to increase the retirement age, you might have missed a call by Aviva to abolish higher-rate tax relief on pension contributions.
Britain’s biggest insurer reasons that a single rate of 30 per cent for all taxpayers would simplify pensions and encourage people to save for retirement.
It provoked a predictable response: such a move would be “disastrous” and discourage higher-rate taxpayers from saving in pensions. But would it? And — here’s a more radical notion — should we care?
For the 25 million basic-rate taxpayers, millions of whom do not save at all, the measure looks like a winner. The rate would be a halfway house between the 20 per cent relief paid to basic-rate taxpayers and the 40 per cent available to those paying tax at the higher rate.
Aviva reckons that it could add up to £50,000 to the pension pot of a basic-rate taxpayer. At a stroke, it would redress the imbalance by which 55 per cent of tax relief goes to the 2.5 million higher-rate taxpayers, most of them men. Everyone would receive the same incentive for the same level of saving — a fairer system. Higher-rate taxpayers would certainly lose out, but wouldn’t a government contribution of 30p in every £1 still be enough incentive? If not, the chances are that most will save in a different form, such as Isas or other tax-favoured products.
A harmonised rate would make things simpler all round. There are bound to be problems when it is introduced, but the pain would not last long. And according to the Pensions Policy Institute it would cost about the same as the existing system — passing the austerity test.
It may not be the answer, but Aviva deserves to be listened to.
Bingo … take a punt on your pensions pot
Mixing gambling and pensions usually ends in disaster. But there are exceptions to every rule. To encourage greater take-up of the pension credit, the Department for Work and Pensions (DWP) is touring Mecca bingo halls across the land. A shocking £5 billion of pension credit goes unclaimed every year.
Since the people won’t come to the pension credit, the DWP has decided to take the pension credit to the people. The credit clearly isn’t working and should be abolished, but there is no point missing out on the top-up in the meantime. Check if you qualify at direct.gov.uk.

Chancellor beats off German move to cap bankers’ bonuses

By
Mail On Sunday Reporter
Last updated at 10:21 PM on 05th September 2009

Capped: Alistair Darling says he has been victorious over bankers’ pay self-regulation
Alistair Darling last night claimed victory over French and German
efforts to cap bankers’ bonuses - but was accused of shelving the
controversial issue
of City pay. Speaking after a meeting of finance ministers from the group of 20 leading economies, the Chancellor said the regulation of bankers’ pay would be farmed out to an international body for ‘examination’. The Financial Stability Board, made up of representatives of central
banks and regulators from around the world, will look at ways of
monitoring the size of bonus pools in major financial centres. The decision came as Downing Street sources indicated that Gordon Brown
would go ‘on the offensive’ next week to claim Tory spending cuts would
lead to a ‘double-dip recession’ - a second slowdown following the
UK’s recovery from its current malaise.Mr Darling fended off attempts by France and Germany for a cap on the
bonuses of individual financial market players - which would have been
the first period of pay controls for private employees in the UK since
1979. He said: ‘Under what we have agreed today we will be able to see in
each firm who is getting these bonuses, whether they are at the top or
the bottom of the organisation.’ Mr Darling called for bonuses to be spread over a number of years and
to be subject to ‘claw back’ should an individual be found to have
taken unnecessary risks.
The decision meant the issue has been deferred until a meeting of G20
leaders at the end of this month in Pittsburgh, United States.Dr Gerard Lyons, chief economist with Standard Chartered, said the
Government had successfully kicked the bonus issue into the long grass.He said: ‘Two wrongs do not make a right. People may, in the past, have
been irresponsible in business but caps on bonuses are not the answer.’

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