With the financial services sector last year defined by uncertainty, 2013 was intended to bring much needed clarity to the profession.
The Retail Distribution Review finally came into force on 31 December 2012 and in April the Financial Conduct Authority swung into action wielding greater power than its predecessor.
But 2013 has proved just as tumultuous for financial services as 2012 – or perhaps even more so.
The first uncertainty arose in January when Prime Minister David Cameron announced his intention of renegotiating the UK’s role in the EU and holding an in/out referendum in 2017.
This kicked off a major debate on EU reform of financial services and brought uncertainty to global asset managers and banks that rely on access to the single market.
The second source of major uncertainty was Scotland and its own planned in/out referendum on UK membership. In November, the Scottish government set out its plans for an independent Scotland in the event of a Yes vote next September.
With plans for Scottish versions of the FCA, Money Advice Service, Financial Ombudsman Service and Financial Services Compensation Scheme, advisers envisaged a “nightmare”.
Pension providers told Money Marketing that pension tax relief would be at risk under an independent Scotland while the Treasury said mortgage rates would rise, savings would be hit and regulatory costs would increase.
The Financial Services (Banking Reform) Bill focused on banks by ringfencing retail arms from investment divisions but it has also spread its tentacles further.
A new senior managers regime is being introduced for deposit-taking institutions, with advisers escaping changes for now. The Bill also created a criminal offence of reckless banking, with a far greater regulatory focus on individual responsibility.
It was another year of scandal with record Libor fines at RBS, UBS and Icap and a record £28m retail fine for Lloyds Banking Group for misselling.
There was also chaos at the Co-operative Bank as it uncovered a £1.5bn capital shortfall, followed by the emergence of drugs allegations about former chairman Paul Flowers. The bank now faces an independent inquiry alongside an internal inquiry, FCA investigation and police inquiry.
Lansons Communications director Ralph Jackson says: “This is the year of getting tough with banking and the Bill bookends a year of disasters, misselling and inquiries where banking has been brought to book. Politicians clearly have the upper hand now.”
The Government has made strides in addressing the costs of an ageing population. The Care Bill has passed through the House of Lords, with battles over the role of financial advice and the deferred payments system in long-term care funding.
The key feature was the introduction of a £72,000 cap by April 2016 but concerns arose about whether the reforms would succeed in removing the need for people to sell their home to pay for long-term care.
Labour peer Lord David Lipsey says: “The Care Bill has not been greatly changed but it has been improved. We have a big commitment on advice and information but the major thing up in the air is the deferred payments scheme.
“I would be very disappointed and surprised if there is not a substantial change in Government policy.”
In the March Budget, Chancellor George Osborne imposed an overall cap on welfare spending, excluding pensions, starting from next year. Labour also adopted a tough stance by promising to cut the winter fuel allowance for pensioners paying the higher rate of tax.
A New Old Lady
The Bank of England hired its first foreign governor in July as Canadian Mark Carney succeeded Lord Mervyn King.
Carney’s first major policy was forward guidance, intended to bring greater certainty to the prospect of interest rate rises. In August, he indicated that interest rates would not increase until unemployment falls below 7 per cent.
As the UK economy has grown more quickly than anticipated, Carney has since clarified that the 7 per cent figure is “a threshold, not a trigger” for rate rises.
Hometrack economist Gary Styles says: “The jury is still out on whether forward guidance is a useful tool because it is so dependent on the unemployment level. The aim was to make rates more predictable but if anything, it has brought forward expectations about interest rates.”
At a glance: The biggest political stories affecting financial services
- January: David Cameron announces EU renegotiation and in/out referendum in 2017.
- February: The Banking Reform Bill is published in the House of Commons with tougher rules for UK banks.
- May: The Care Bill is published in the Queen’s Speech, proposing a £72,000 lifetime cap on long-term care costs.
- August: New Bank of England governor Mark Carney unveils his forward guidance plans to bring certainty to interest rate setting.
- September: The Government reshuffles ministers with Sajid Javid promoted to Treasury financial secretary as his predecessor, Mark Hoban, drops to the back benches.
- November: Scottish first minister Alex Salmond unveils his plans for an independent Scotland with a new FCA, FOS, MAS and FSCS.