January 2015

|

The Banker

|

1

2

TheregulaTory

challenges

of2015

Banks face a continued onslaught

of regulation in 2015 as politicians

ne-tune forthcoming legislation

to toughen up the banking system.

Farah Khalique investigates.

4

facingupTo

regulaTory

fragmenTaTion

Differences in the content and timing of

rules on resolution planning, structural

reforms and derivatives are threatening

to unravel cross-border banking models.

Philip Alexander reports.

8

BreakingBad

Banking

Conduct risk the risk of staff

acting unprofessionally, unethically or

illegally has become a major concern

for supervisors and banks, as Michael

Imeson reports.

10

Banking:

ThenexT

generaTion

The UK banking industry is opening

itself up to new entrants in the hope

that this will stimulate greater

competition in the market. Jane Cooper

discovers early signs that innovative

new players could be doing exactly that.

TheBanker

Published by Financial Times Ltd, Number One Southwark Bridge, London SE1 9HL, United Kingdom

Tel: +44 (0)20 7873 3000. Editorial fax: +44 (0)20 7775 6421 Website: www.thebanker.com

one-year subscription rates: 695* Full access to TheBanker.com and The Banker magazine. *VATwill be charged if applicable

Editor: Brian Caplen +44 (0)20 7775 6364, brian.caplen@ft.com Senior Editor: Philip Alexander +44 (0)20 7775 6363, philip.alexander@ft.com Editor Emeritus: StephenTimewell +44 (0)7764617824, stephen.timewell@ft.com

Economics Editor: Silvia Pavoni +44 (0)20 7775 6366, silvia.pavoni@ft.com Technology and Transaction Banking Editor: Jane Cooper +44 (0)20 7775 6325, jane.cooper@ft.comMiddle East Editor: James King +44 (0)20 7873 4131,

james.king@ft.com Europe Editor: Stefanie Linhardt +44 (0)20 7873 4325, stefanie.linhardt@ft.comAsia Editor: Stefania Palma +44 (0)20 7873 4820, stefania.palma@ft.comHead of research: Guillaume Hingel +44 (0) 20 7775 6369,

guillaume.hingel@ft.comDatabase publisher: Adrian Buchanan +44 (0)20 7775 6370, adrian.buchanan@ft.com Editorial Logistics: Simon Duffy +44 (0)20 7873 3373, simon.duffy@ft.com

Contributing Editors: Edward Russell-Walling, Nick Kochan, David Lane, Frances Faulds,Michael Marray, JaneMonahan, SimonMontlake, Joanne Hart,Michael Imeson,James Gavin, John Rumsey, PeterWise, David OByrne, DavidWigan,

Charles Smith, Jules Stewart

Publishing Director:Angus Cushley +44 (0)20 7775 6354, angus.cushley@ft.com International Sales Manager: Adrian Northey +44 (0)20 7775 6333, adrian.northey@ft.comAssociate Publishers: Philip Church (Asia andAfrica):

+44 (0)20 7775 6328, philip.church@ft.com, LukeMcGreevy (Middle East and northAfrica): +971 4391 4398, luke.mcgreevy@ft.com,Anton Paul (central and eastern Europe): +44 (0)20 7775 6355, anton.paul@ft.com,Tanny Ribeiro

(Latin America): +351 918 669 188, tannyribeiro@yahoo.com

Production Editor: Richard Gardham +44 (0)20 7775 6367, richard.gardham@ft.com Deputy Production Editors: HelenWilson +44 (0)20 7775 6918, helen.wilson@ft.com,Andrea Crisp +44 (0)20 7775 6338, andrea.crisp@ft.com

Art Editor: Lisa Sheehan +44 (0)20 7775 6539, lisa.sheehan@ft.comHead of Production: Denise Macklin +44 (0)20 7775 6557, denise.macklin@ft.com

Global Operations Director Magazines: Peter Slaughter +44 (0)20 7873 3267, peter.slaughter@ft.com Senior Marketing Manager: Raj Rai +44 (0)20 7775 6340, raj.rai@ft.comGeneral Manager: Peter Culleton +44 (0)20 7873

4847, peter.culleton@ft.com

Subscription enquiries, payment and online access: tel: +44 (0)20 7873 4240 email: thebanker@ft.comCustomer service, missing copies and address change: tel: +44 (0) 1858 438 417 email: ft@subscription.co.uk

Printers:WyndehamRoche LimitedDistribution: Seymour Distribution Limited, 2 East Poultry Avenue, London, EC1A9PT.Tel: +44 (0)20 7429 4000, Fax: +44 (0)20 7429 4001

Reprints are available of any The Banker article, with your company logo and contact details inserted if required (minimum order 100 copies). For details telephone +44 (0)207 873 4816. For one-off copyright licences for reproduction of The Banker articles telephone +44 (0)207 873 4871.Alternatively,

for both services email synd.admin@ft.com

Registered Number: 00202281 (England andWales) ISSN: 0005-5395 Financial Times 2015.

The Banker is a trademark of Financial Times Limited 2015.Financial TimesandFTare registered trademarks and servicemarks of the Financial Times Ltd.All rights reserved. No part of this publicationmay be reproduced or used in any form of advertising without prior permission in writing from the

editor. No responsibility for loss occasioned to any person acting or refraining from acting as a result of material in this publication can be accepted. On any specicmatter, reference should bemade to an appropriate adviser. Registered ofce: Number One Southwark Bridge, London SE1 9HL, UK.The

Financial Times adheres to a self-regulation regime under the FTEditorial Code of Practice: www.ft.com/editorialcode

RegulatoRs weRe alReady

woRRied about Risk

cultuRe because of the

excessive Risk taking

pRe-cRisis, then we have

had all these behaviouRal

issues post-cRisis

Patricia Jackson, page 8

contents

Regulation and stRategy

|

reporT

introduction

2

|

The Banker

|

January 2015

reporT

|

Regulation and stRategy

Banks must keep aBreast of regulatory

change and make tough decisions in order

to satisfy regulators demands and maintain

business as usual. the year 2014 was a year

characterised by billion-dollar bank fines,

endless consultations and tough talk from

politicians, but 2015 looks set to be the year

that banks gain clarity on new banking rules

and can start to implement change.

theuKs Financial Conduct authority is

set to introduce the new senior Managers

and Certified Persons Regime in 2015, to

replace the existing approved Persons

Regime, which will impose greater responsi-

bility and accountability on individuals.

the new legislation is a game-changer

for investment banks, say experts, because it

removes the presumption of innocence and

will force banks to think more carefully

about how they take risk.

GuilTyunTilproveninnocenT

under the new proposals, a senior person

can be found guilty of misconduct if a con-

travention occurs in an area for which they

are responsible, unless they can show that

they took reasonable steps to avoid the con-

travention. the burden of proof is on the

senior person to show their innocence, even

if they were not knowingly concerned.

Will dennis, managing director of com-

pliance at trade body the association for

Financial Markets in europe (aFMe), says

that there remains an element of ambiguity

as to senior managers responsibility and

also around who is subject to the rules of

conduct senior managers or certied per-

sons. the issue facing banks is the huge

amount of training for persons who will be

subject to the new rules of conduct, accord-

ing toMrdennis.

if its a wide set of people then obviously

a lot of training has to be done. it is not clear

yet for banks, but to put in place all these

changes in a matter of months is quite a big

regulatory ask and requires changes to

employment contracts and systems, he

says, adding i think it will make banks

decision making more risk averse because

individuals [must] think carefully about the

decisions theymake.

the new regime is estimated to come

into effect in the latter half of 2015, most

likely the fourth quarter. Meanwhile, the uK

treasury opened a consultation in novem-

ber 2014 to extend the new rules to senior

managers at uK subsidiaries of foreign

banks as well.

Thefinemess

six banks were fined a total of $4.2bn in

november for colluding to manipulate for-

eign exchange benchmarks, and the banks

are now keen to put the scandal behind

them. But the trend of bank nes is increas-

ing, says Pierre Pourquery, partner in nan-

cial services at ey.

Regulators have made it explicitly clear

in their rhetoric that they are keen to punish

previous bad behaviour and stamp out

nefarious practices. a challenge for banks in

2015 is demonstrating to regulators that

potential conicts of interest on the trading

oor are properly managed, without putting

themselves in jeopardy.

one problem is that when banks are

coming up with a new framework of con-

trols to deal with conflicts of interest on

trading oors, they identify issues that can

expose them to a future legal suit, says Mr

Pourquery.

identifying potential conicts of interest

on the trading oor is a tricky issue for banks.

For example, a foreign exchange trader may

appear to be conflicted when pre-hedging

aheadof a client transaction.Howcana trader

demonstrate that pre-hedging by the bank is

always in the best interests of the client?

Will Dennis,managing director of compliance,

Association for Financial Markets in Europe

TheregulaTory

challengesof2015

Introduction

Banks face a continued onslaught of regulation in 2015 as politicians ne-tune

forthcoming legislation to toughen up the banking system. Farah Khalique investigates.

January 2015

|

The Banker

|

3

We are discussing thiswithmany banks,

which are wondering now what to do and

how to implement new controls. one solu-

tion is to put a limit on the hedge, but i am

not sure this is the answer and there is no

best practice guidance, saysMr Pourquery.

conflicTsof inTeresT

it is also paramount for banks to identify

potential conicts of interest between differ-

ent desks, and to prove to regulators that

they understand andmanage this risk.

an options salesperson might sell a dig-

ital option to a client, for which the payout

is contingent upon the price of an underly-

ing bond. arguably, a bond trader at the

same bank could be persuaded to intervene

in the market and move the price of the

bond when the option is set to expire, in

favour of the bank.

Mr Pourquery says: one suggestion is to

forbid trading at the point of expiry, but

banks cant stopmakingmarkets. therefore,

some clients are not necessarily protable

anymore because of the risk, and the cost

and complexity attached to new controls.

Banks have until January 30, 2015, to

respond to the uK Financial Conduct

authoritys latest consultation on reinforc-

ing condence in the fairness and effective-

ness of the fixed-income, currency and

commoditiesmarkets.

TherisinGcosTofcapiTal

Banks are also under pressure to put aside

more capital to prevent another global nan-

cial crisis. in november 2014, the Financial

stability Board (FsB) proposed that banks

hold total loss-absorbing capacity (tlaC)

equivalent to 16% to 20% of their risk-

weighted assets or twice the Basel simple

leverage ratio (6% of unweighted assets).

david Clark, a former banker at rms

including HsBC and Bankers trust, and

now chairman of the Wholesale Markets

Brokers association, believes that banks

putting aside more money for capital is

very signicant indeed, and begs an awful

lot of questions.

the two things that jump out at you are

where the money is going to come from, and

how much will it cost. Cost of capital will go

up, it is already more than 10% for some

banks, saysMr Clark.

the introduction of functional living

wills for banks is taking an extremely long

time to roll out, so the obvious solution is for

regulators to ask banks to put up more capi-

tal, says Mr Clark. the FsB will finalise

banks tlaC in time for the g20 leaders

summit in turkey in 2015.

the key challenge for banks is to issue

enough subordinated debt to meet regula-

tors demands, according to gilbey strub,

managing director in resolution and crisis

management at aFMe.

one of the concerns of banks is whether

there is enough capacity in the market to

absorb new issuance in the timeframe, and

whether investor mandates will permit

investing in subordinated debt. its changing

the wholemarket, he says.

BcBs239

the 14 principles of the Basel Committee on

Banking supervision (BCBs) paper 239

introduce a global framework for risk data

aggregation and reporting, which banks

have to comply with by January 2016. a

study published in december 2013 found

that one-third of global systemically impor-

tant banks would not be ready to comply by

the deadline.

the problem facing a number of banks is

their ability to collect data, according to

Bradley Ziff, chief risk advisor for technology

firm Misys. Banks use multiple pieces of

Regulation and stRategy

|

reporT

introduction

software that they buy, and occasionally

build, and then replace. its a case of rip and

replace versus work with what youve got.

Banks need the ability to collect clean data,

which is a challenge for a lot of these institu-

tions, he says. the next big step is going to

be setting up proper limit structures which

many institutions do not have yet, in terms of

assets and risk limits.

But the biggest challenge for banks, from

a data aggregation perspective, is the com-

putation of stress-testing, says eysMr Pour-

query. the bigger a bank, the more complex

its systems and data. stress testing requires

strong processes and it to gather all the nec-

essary data at a granular level.

For the stress tests expected in 2015,

especially the us Comprehensive Capital

analysis and Review, it will be the impact of

interest rates on macroeconomic variables

that are taken into account when stress test-

ing, predictsMr Clark.

newresponsiBiliTies

ultimately, banks must fortify their three

lines of defence, according to many industry

experts. the first line relates to the front

ofce, where managers on trading desks and

credit teams monitor risks the bank is tak-

ing. the second line comprises more senior

risk managers who report to the board. the

third line refers to internal and external

auditors that oversee a banks operations.

the key for banks is utilising data and

technology to better manage risk. For exam-

ple, monitoring traders conversations to

nd key words that point to erroneous activ-

ity can be like looking for a needle in a hay-

stack. But technology that can perform a

semantic search, instead of just searching for

key words, can prove to bemore fruitful.

in addition, banks need to increase the

second line of the three lines of defence by

10% to 15%, according to Mr Pourquery.

Regulators say the risk should be owned by

the front ofce, which in effect has created

another line of defence focused on control.

now we have more lines and more peo-

ple, as well as it, infrastructure and data

infrastructure. in addition, banks have large

cost-cutting programmes of about $1bn to

$2bn per bank. the inter-effect of these two

[scenarios] will most likely drive banks

towards a new model in terms of how they

operate, saysMr Pourquery.

a new role of chief control officer is

emerging, but banks must ensure that there

is accountability across all three lines of

defence. it is a problem when there is no

clear accountability because everyone has a

little responsibility, saysMr Pourquery.

When banks are coming

up With a neW frameWork

of controls to deal With

conflicts of interest on

trading floors, they

identify issues that can

expose them to a future

legal suit Pierre Pourquery

banking models

4

|

The Banker

|

January 2015

In Its fIrst consultatIon on total loss-

absorbIng capacIty (tlac) to ease the res-

olution of the worlds largest cross-border

banks, the Financial Stability Board (FSB)

included the concept of pre-positioning.

This means 75% to 90% of the resources

needed to recapitalise the local subsidiaries

of a global parent known as material sub-

sidiaries of the resolution entity would be

held in the local jurisdictions. Speaking at

the Financial Times/Banker banking sum-

mit in November 2014, Credit Suisse invest-

ment banking co-head Gael de Boissard

depicted this as a signicant departure from

the previous efforts, especially in the Basel

Committee on Banking Supervision, to

develop genuinely global standards.

TLAC is the rst time under the [capi-

tal] framework that we have a fundamen-

tally national concept. Thats new, and in a

way we have accepted the reality that we

have seen through the development of the

resolution and recovery planning process of

a fundamentally domestic-based thinking,

saidMr de Boissard.

Alongside TLAC and resolution plan-

Facinguptoregulatory

Fragmentation

Banking models

Differences in the content and timing of rules on resolution planning, structural reforms

and derivatives threaten to unravel cross-border banking models, writes Philip Alexander.

reporT

|

REGuLATioN ANd STRATEGy

ning, a number of key jurisdictions such as

theuS,uKandEuhave implemented or are

considering bank structural reforms that

prohibit deposit-taking institutions from

engaging in proprietary trading or impose

ring-fences within universal banks to enable

easy separation of retail banking and trading

desks in the event of resolution.

Banks are trying to retain the advantages

of being global, but they also have to make

statements about how they would implement

structural reforms, such as the Bank of Eng-

lands requirement to see ring-fence plans by

January 2015

|

The Banker

|

5

REGuLATioN ANd STRATEGy

|

reporT

asian approaches

Asianregulatorshavemoved

moregradually thantheUSor

Europeto implementderivative

rulesandresolutionplanning, in

part reecting the lowerdegree

ofnancial complexity in the

region.But thisdoesnotmean

theywill necessarily followa

similarpath to theUSorEurope,

ordevelopany formof regional

consistency.

Althoughtheyhavenot

declared itopenly, it seems likely

that the largestAsiannancial

centresHongKongandSinga-

porewould like toseethem-

selvesaspotential tradinghubs.

Atpresent,derivatives trading

posesamuchsmallersystemic

risk inAsianmarkets than in the

USandEUbefore thenancial

crisis.Thatmeansthere is lim-

itedneedforaheavyblanketof

regulation,saysRebeccaTerner

Lentchner,headofpolicyand

regulatoryaffairsat theAsia

Securities Industry&Financial

MarketsAssociation.

What ismostuseful is to

build risk-worthy infrastructure,

especiallycentral clearingcoun-

terparties [CCPs].There isa

consensusamongbothbuy-

sideandsell-side thatAsian

CCPsareratheropaqueatpre-

sent.That isnotso important

yetbecausetheyarecurrently

small collectorsofsystemic risk,

butas theyevolve theywill need

toadoptbest-in-classstandards

of resilience,shesays.

KeithPogson,seniorpartner

forAsia-Pacicnancial ser-

vicesatEY,saysSingapore

andHongKonghaveretained

apragmatic lineonwhether

wholesalebankingoperations

in their jurisdictionsneedtobe

subsidiarised.Thismeansglobal

bankshavemoreexibilityon

thedistributionofcapital in

these twomarkets,whereas

otherssuchas India,South

Koreaand Indonesiaaremore

likely topush for ring-fenced

capital in the localmarket.Even

inHongKongandSingapore,

however,foreignbankbranches

arestill likely to facerequire-

ments to implementasset

maintenanceratios thatwould

trap liquidity in thosebranches.

Wehaveseenperhaps

sixorsevenmajorderivative

housesexploringwhether it is

possibleormakessensetocre-

ateasingleAsianbooking loca-

tion inastand-aloneex-US

subsidiary forunclearedover-

the-counterderivatives trading

suchas foreignexchangeswaps.

Dealershavetoexaminehow

muchcapital theywouldneed in

agiven jurisdictionandbalance

thatwith theneedfora reputa-

ble regimethatmakespeople

comfortablewitha transaction.

Thosebanks thatalreadyhave

anetworkofsubsidiariesonthe

groundaremore likely to look

insteadatamultiple location

customer-centricmodel,says

MrPogson.

ForAsianbanks thatare

becomingcross-border regional

players,thescale involved is

smaller.TheAssociationof

South-eastAsianNations

(Asean)hasablueprint to form

anAseanEconomicCommunity

in2015.This includes the

conceptofQualifyingAsean

Banks,andpotentialmembers

havepledgedtoadoptBasel-

compliant regulatory regimes

by2018withaviewtoregional

bankpassportingby2020.

Fornow,however,regulatory

co-operationhas focusedon

bilateralmemorandaofunder-

standingrather than fullmutual

recognitionregimes.

Weareseeingdiscussions

thatenabledMalaysianbanks to

operate in Indonesia,deals for

fundspassporting,andnowthe

HongKong/ShanghaiStock

Connect initiative. It isanexcit-

ing time,Asianregulatorsare

trying tobuildcloser linksandto

learn fromtheroll-outofcross-

border ruleselsewhere,saysMs

TernerLentchner.

banking models

January 2015. it is questionable whether

structural reforms are necessary if we have

resolvability through TLAC and other initia-

tives, but regulators have a deep-seated belief

rightly or wrongly that trading is inher-

ently riskier than lending activities, says

Thomas Huertas, partner and coordinator of

Eys global regulatory network.

naTionalsuBsidiaries

The FSBs intention is that the TLAC propos-

als should improve the co-operation between

jurisdictions, because it will give everyone

more visibility about howa cross-border bank

would be resolved. But Koos Timmermans,

vice-chairman of the board at iNG Bank, is

concerned that the top end of the FSBs pro-

posed range for pre-positioning of internal

TLAC (90%)may be going too far. He fears it

could create incentives for host supervisors to

bail in subsidiaries early, knowing they have

almost enough resources locally to recapital-

ise the subsidiary completely.

That incentive would be even stronger if

banks were able to move pre-positioned

TLAC to other, more damaged subsidiaries.

Moreover, the FSB proposal would leave

supervisors with the discretion to add fur-

ther TLAC requirements under theBasel pil-

lar two (supervisory oversight) process.

The pre-positioning of TLAC could lay

the groundwork for home-host coordination

as long as the FSBs proposed balance is

maintained. But if host countries start to

demand that the subsidiaries they regulate

hold larger amounts of capital downstream,

the overall pattern does not work, because

the sum of what banks would have to keep in

the subsidiaries would exhaust the ability of

the parent to hold a sensible amount of capi-

tal, saysMrHuertas.

BreakingTheBranch

Mr Timmermans other concern is that pre-

positioningofTLAC inmaterial subsidiaries is

likely to encourage host supervisors to require

the creation of a subsidiary where a branch

previously existed. The process of resolution

planninghas started this trend already.

Mostbanksare evaluatinghowtomigrate

to a global subsidiarised model and how fast

and far that needs to go. Very few have an

expectation that they will be able to continue

operating on an integrated cross-border basis

governance, capital, liquidity and the resolu-

tionplanning requirementsall drive towardan

appreciation that firms in resolution are

addressed on a jurisdiction-by-jurisdiction

basis. The comfort level in most jurisdictions

for relying on co-operation with other coun-

tries is fairly low, says Marc Saidenberg, a

6|

The Banker

|

January 2015

principal at Ey and former director of supervi-

sorypolicy at theNewyorkFederalReserve.

The uS has required foreign banking

operations (FBos) to collect their American

subsidiaries into an intermediate holding

company (iHC) that will carry its own capi-

tal and liquidity requirements, and could be

bailed in separately. That challenge could be

further intensied by the uS stress-testing

process. Mr Saidenberg believes for some

foreign banks the effective capital that Fed

stress tests will require in the uS will exceed

whatwould be required by their home super-

visors, although the use of stress tests is rap-

idly spreading around the world.

The new environment is leaning toward

a change in funding model for some rms.

Pre-crisis, many were comfortable sourcing

dollar liquidity in the uS to nance dollar

assets globally, with little or no capital or

liquidity attracted to those activities in the

uS. For groups that face solo capital require-

ments or scrutiny of trapped capital in their

home jurisdiction, this is going to challenge

their model, saysMr Saidenberg.

WhereToTrade?

Most banks are already operating interna-

tional retail banking services as a collection

of subsidiaries, so the pressure to subsidi-

arise is mainly a concern for the economics

of wholesale banking, says Mr Huertas. if

wholesale banks cannot operate an overseas

branch structure to reach their clients, they

will naturally want to see if the clients can

reach them via an international financial

centre, such as London in the case of Europe.

if the clients can come to the nancial

centre, that makes things manageable. But

whether this works for everywholesale prod-

uct is something that is in the process of

being determined. We are working with

some institutions to try to solve this prob-

lem, and the solution generally depends on

how their home country regulation is going

to change, saysMrHuertas.

The focus on how to resolve global sys-

temically important banks is also running

parallel to difculties between uS and Eu

regulators in their efforts to provide equiva-

lence regimes for post-crisis derivatives

rules. derivatives are global products, and

the industry is certainly keen to avoid dupli-

cate but differing regulation in the two larg-

est nancial market jurisdictions.

no-acTionrelief

in November 2014, the uS Commodity

Futures Trading Commission (CFTC)

extended its no-action relief for non-uS

swap dealers to comply with certain dodd-

reporT

|

REGuLATioN ANd STRATEGy

taxing times

Bank regulation isnot the

onlyareastimulatingconcerns

abouta lackofcross-border

coordination.Governmentsare

alsoworriedabout the implica-

tionsofpoorlycoordinated tax

systems.TheOrganisation for

EconomicCo-operationand

Development (OECD) launched

anactionplan tocombat tax

baseerosionandprotshifting

(BEPS) inJuly2013,andhas

sincebeendraftingconsulta-

tionpaperson the implementa-

tionof its 15proposedactions.

Themeetingofministers

fromtheG20countriesatBris-

bane inNovember2014wel-

comedprogressontheBEPS

initiativeandcommittedto

nalising thiswork in2015,

including transparencyof tax-

payer-specicrulings foundto

constituteharmful taxprac-

tices.TheG20membersalso

wantacommonreporting

standard for thereciprocal

automaticexchangeof tax

informationby2018.

Wearemoving fast to limit

theperiodofuncertainty.The

rulesarechanging,and if they

donotchangeat theOECDlevel,

countrieswill changethemin

theirown jurisdictions.Thenew

ruleswill beknownbytheendof

2015,andagood investorwill

anticipate theenvironment,

becausethedirection isclear,

saysPascalSaint-Amans,direc-

torof theOECDscentre for tax

policyandadministration.

Whatmatters to thenan-

cial sector is somedegreeof

alignmentbetween thedirec-

tionof travel on taxand the

many initiatives in the regula-

torysphere.But thathasnot

happenedso far,according to

EYinternational taxpartner

AnnaAnthony.

TheOECDprocess is run-

ningseparately,and isnotnec-

essarily focusedonsomeof the

speciccharacteristicsof the

nancial servicessector,says

MsAnthony.

Areas likely tobeaffected

includetheeffectsofnewVAT

andtransferpricingruleson

cross-borderbanks thathold

theircore functions inone

entity thatprovidesservices

internationallyacross thegroup.

Bankswill alsoneedtounder-

standthe interactionbetween

specicnancial contractsand

taxrulesonwhetheranentity

hasapermanentestablishment

inagiven jurisdiction.

Someof these issuesmay

notnecessarilyhave largedirect

consequences in termsofan

increasedtax take,but theywill

imposehugeadditionalcosts

ofcompliance inworkingoutall

theactivitiescarriedoutby the

banksstaff,andwhere those

activitiesare takingplace.

Approaches toreportingvary,

andsomebankscurrently

reportbybusiness line rather

thanbycountry,which iswhat

will be requiredbytheOECD

proposals,saysMsAnthony.

banking models

G20members praised progress on the tax base erosion and prot shifting

action plan at a recent meeting in Brisbane (pictured) in November 2014

banking models

January 2015

|

The Banker

|

7

Frank rules on trading via uS-regulated

swap execution facilities (SEFs) if they used

any uS personnel to handle a trade even if

the client is also a non-uS entity. This still

leaves the nal rules unknown, but one uS

derivatives lawyer says the extension will be

very welcome, as the deadline was already

too close for banks to be able to comply.

The extra-territorial guidance in 2013

was already contentious, and the CFTCs

interpretation of it came as a major shock.

Many non-uS banks use New york as a cen-

tralised location for handling Canadian and

Latin American trading operations all that

business would have had to move out of the

uS in 2015, says the lawyer.

NewCFTC chairman TimothyMassad is

becoming more closely involved in the agen-

cys guidance on extra-territorial issues. As

well as the treatment of foreign banks, the

impact of SEF rules on uS bank operations

overseas are also in play.

Non-guaranteed afliates of uS banks

are treated as non-uS entities, but the

CFTCs denition of guarantees could poten-

tially be broad enough to swallow up many

types of relationship, says the lawyer.

Moreover, the SEF rules are just one part

of the uS extra-territorial equation. The Vol-

cker Rules prohibition of proprietary trading

has generated significant confusion among

foreign banks. The rule is due to come into

force in July 2015. uS banks are allowed to

make markets in uS treasuries without fall-

ing foul of the proprietary trading ban, but

the treatment of foreign banks and sovereign

bonds is prompting serious concerns.

depending on which part of the rule you

examine, it is unclear if a foreign banking

organisation with a uS subsidiary can trade

its home sovereign debt anywhere or only in

the uS, which would be a very strange situa-

tion. There also seems to be an implication

that local sovereign debt can only be traded in

the home jurisdiction, which would raise

questions about, for instance, trading Ger-

man bunds in London, says derek Bush, a

financial institutions regulatory partner at

ClearyGottlieb inWashington,dC.

ring-fencing

The uK structural reform set out in the 2013

Banking Reform Act, including a ring-fence

around core retail banking and essential

operations, is due to come into force in 2018,

so there ismore time to iron out any ambigui-

ties. Concentration limits will apply to the

ring-fenced bank, so that its ability to nance

its non-ring-fenced units will be constrained.

Possible Eu structural reforms, along

the lines set out in a report by Finnish cen-

REGuLATioN ANd STRATEGy

|

reporT

tral bank governor Erkki Liikanens expert

group in 2012, are at an earlier stage of

development. The European Council and

European Parliament are still debating

whether to adopt the Liikanen Reports pro-

posed separation of trading desk operations.

Ring-fencing any part of a bank and

requiring it to be separately funded and capi-

talised is a complicated requirement tomeet,

which unbundles long-established treasury

mechanisms internally, so that each new

function has to manage itself, says Glenn

Leighton, a managing director of balance

sheet solutions in the nancial institutions

group at Barclays investment bank.

TheuKapproach, however, seems easier

to implement because of the location of the

proposed ring-fence. inside the fence, the

banks retail and small business franchise

will provide deposit funding. outside the

fence, larger corporate and international cli-

ents will have deposits that can fund the

entity, potentially together with individual

savings over the deposit guarantee cap. in

Liikanen, by contrast, the trading book is

potentially supposed to be ring-fenced as a

specic entity.

The trading book is not an entity, it does

not have its own separate systems or people,

it is just items within a portfolio that are not

separately distinguished. The trading book

has no natural customer base in the sense of

customers coming into branches or retail

funding. individual derivative positions

could be the aggregate of several customer

trades or the positions of internal market

riskmanagers, saysMr Leighton.

From an international perspective, the

operations of uK-headquartered banks that

are outside the European Economic Area

will need to be placed outside the ring-fence.

Mr Huertas says this has sent a signal in

itself to other jurisdictions, inuencing the

introduction of the uS FBo rules and the

domestic lifeboat rule for Swiss banks that

would separate their international opera-

tions in a resolution.

That is also consistent with the legisla-

tion of many countries that sets the supervi-

sors objective as promoting financial

stability in the domestic jurisdiction, rather

than internationally, saysMrHuertas.

Mr Leighton at Barclays says uK groups

that are run as a federated set of subsidiaries

will have existing financing arrangements

formuch of their international business, eas-

ing the transition to ring-fencing. But for

banks running a bolt-on branch network or

complex offshore structures, the intra-group

lending limits will make that more difcult

tomanage, he says.

Banks are trying to retain

the advantages of Being

gloBal, But they also have

to make statements aBout

how they would implement

structural reforms

Thomas Huertas

ConduCt risk

8

|

The Banker

|

January 2015

improve their risk culture, and guide super-

visors on how they should be supervised.

One of the foundations of a sound risk

culture, says the guidance, is that employees

in all parts of an institution should conduct

business in a legal and ethical manner.

Effective risk governance is another founda-

tion: the board of directors, the riskmanage-

ment department and the compliance

function should have an important role to

play in conduct risk control.

In addition, the Basel Committee is con-

sulting on a revision to its corporate govern-

ance principles for banks. The consultation,

which ends on January 9, 2015, has a strong

focus on risk management. It includes pro-

posals to strengthen the guidance on risk gov-

ernance, including the riskmanagement roles

played by business units, risk management

departments, and internal audit and control

functions (the three lines of defence), as well

as the importance of a sound risk culture.

One of the responsibilities of a banks

board, says the Basel Committee, is to have a

role in writing the banks risk appetite state-

ment, which should include qualitative

statements to address reputation and con-

duct risks as well as money laundering and

unethical practices.

Regulators have moved into the policy

area and are telling banks that the three-lines-

of-defence principle of risk management has

not worked, says EYsMs Jackson, who is also

editor of the just-published bookRisk Culture

and Effective Risk Governance. In effect, it

has been reduced to only one line of defence,

she says. Only the risk function is controlling

the risk, while the frontline which should be

the rst line of defence is just interested in

revenue generation. Regulators are saying

that the frontline has to own the risk.

Ted Price, advisor, risk governance, for

the Americas at EY, adds: Supervisors are

struggling with how to assess risk culture

and conduct in nancial institutions because

it is out of their comfort zone. They are used

to auditing things they can touch and feel,

whereas culture is largely intangible. Super-

visors are therefore putting together differ-

ent kinds of assessment frameworks, and

some have considered hiring psychologists.

Theeuropeandimension

The European Banking Authority (EBA), in

its June 2014 Risk Assessment of the Euro-

pean Banking System, noted that detrimen-

tal business practices of EU banks continue

to affect consumer condence in banks and

have an increasingly adverse impact on insti-

tutions involved.

It added: Inappropriate conduct such as

risk culture because of the excessive risk tak-

ing pre-crisis, then we have had all these

behavioural issues post-crisis, says Patricia

Jackson, head of nancial regulatory advice,

Europe, theMiddle East, India andAfrica, at

EY. It has really made the regulators con-

cerned about the conduct of rms vis--vis

their customers and the markets. Boards are

concerned too because the nes and the rep-

utational damage have been substantial.

GloBalacTion

The Financial Stability Boards Guidance on

Supervisory Interaction with Financial

Institutions on Risk Culture: A Framework

of AssessingRisk Culture, published in 2014,

has done a lot to help banks understand and

The huge penalTies levied on banks in

recenT years for poor standards of behav-

iour, failures in operational controls, regula-

tory breaches and illegal activity has created

a new term in the lexicography of risk man-

agement: conduct risk.

The inability of banks tomanage this risk

has resulted in severe cases of benchmark rig-

ging, product mis-selling, sanctions busting,

failures in anti-money laundering proce-

dures, rogue trading, insider dealing and

other transgressions. As a result, some banks

have been ordered by criminal prosecutors,

regulators and others in authority to pay hun-

dreds of millions often billions of pounds,

dollars or euros in nes and compensation.

Regulators were already worried about

BreakingBad

Banking

Conduct risk

Conduct risk the risk of staff acting unprofessionally, unethically or illegally

has become a major concern for supervisors and banks, as Michael Imeson reports.

reporT

|

REGUlATIOn And STRATEGY

On the dark side: banks inability to manage conduct risk has resulted in a number of high-prole scandals

RegulatoRs weRe alReady

woRRied about Risk

cultuRe because of the

excessive Risk taking

pRe-cRisis, then we have

had all these behaviouRal

issues post-cRisis

Patricia Jackson

ConduCt risk

January 2015

|

The Banker

|

9

mis-selling of banking and other products to

consumers, failures with regard to rate

benchmark setting processes, and alleged

manipulation of markets for credit default

swaps has already been mentioned in previ-

ous reports. However, the scope of alleged

inappropriate practices is widening, and the

magnitude of previously identied detrimen-

tal practices, for example related to foreign

exchange trading business, is increasing.

The EBA said that individual banks had

paid out in the form of compensation,

redress, litigation and similar payments

aggregate amounts of more than 1bn in the

previous year. Such rising conduct costs in

some cases substantially affect protability

of institutions concerned, it says. As a result,

there is a need to keep conduct risks high on

the supervisory agenda.

In conclusion, the EBA recommended

that risk cultures should be adjusted and

that banks should better integrate conduct

of business concerns in their governance and

risk management arrangements. Current

arrangements, it said, frequently fail to iden-

tify conduct of business concerns as there

often is no internal institutional denition of

conduct risks, and most risk models applied

in institutions fail to capture conduct risks.

The EBA also includes conduct risk in its

draft guidelines for common procedures and

methodologies for the supervisory review

and evaluation process (SREP) under the

Capital Requirements directive IV. The nal

guidelines will be issued shortly, for national

supervisors to follow from January 1, 2016.

Theukexperience

TheUKs Banking ReformAct 2013 not only

introduced structural changes to the coun-

trys banking sector but took action to

improve bankers behaviour. The measures

taken included a criminal sanction for reck-

less misconduct if it leads to bank failure, a

more stringent approval regime for senior

bankers run by the Prudential Regulation

Authority (PRA) and Financial Conduct

Authority (FCA), and the creation of the

Banking Standards Review Council (BSRC).

The PRA and FCA are currently review-

ing the responses to a joint consultation

paper CP14/13 Strengthening accountabil-

ity in banking: a new regulatory framework

for individuals which will replace the

Approved Persons Regime (APR) with

somethingmuch stricter.

The behaviour and culturewithin banks

played a major role in the 2008-09 nancial

crisis and in conduct scandals such as pay-

ment protection insurance mis-selling and

the attempted manipulation of libor, says

the paper. The new framework will mark a

fundamental change in the regulators abil-

ity to hold individuals to account.

The APRwill be replaced with:

A Senior Managers Regime, which will

clarify the lines of responsibility at the top

of banks, force banks regularly to vet their

senior managers for tness and propriety

and impose tougher penalties.

A Certication Regime, which will apply

to a wider range of staff than under the

APR, will require banks to assess the tness

and propriety of staff who are in positions

where the decisions they make could pose

signicant harm to the bank or any of its

customers.

A new set of conduct rules applying to

all bank employees except those in exempt

positions such as security guards or canteen

staff which lay down expected standards of

behaviour.

TheBankinGsTandards

reviewcouncil

The regulatory push is being complemented

by industry initiatives, chief of which is the

creation of the BSRC to promote high stand-

REGUlATIOn And STRATEGY

|

reporT

ards of behaviour and competence across the

UK banking sector standards that cannot

be enforced by regulation alone.

Strictly speaking, the BSRC is not a true

industry initiative because it is was recom-

mended by the Parliamentary Commission

on Banking Standards, after which the UK

government told the UKs six biggest banks

and the biggest building society,nationwide,

to set it up.

The banks appointed Sir Richard lam-

bert, former director-general of the Confed-

eration of British Industry, to get the ball

rolling. In May 2014 he published a report

stating exactly how the board should be

organised and what it should do. The report

said that the council should contribute to a

continuous improvement in the conduct and

culture of banks and building societies doing

business in theUK.

dame Colette Bowe was appointed the

BSRCs chairman in november 2014 by a

selection panel chaired by the Bank of Eng-

land governor Mark Carney and which

included the Archbishop of Westminster.

Executivemanagers are nowbeing recruited.

In the rst half of 2015 it should be able to

report on the state of banking standards and

good practice.

TeachinGGoodBehaviour

The Centre for Commercial law Studies at

Queen Mary University of london has

recently set up an Institute for Regulation

and Ethics and is carrying out research into

conduct risk.

More should be done at corporate gov-

ernance level to make sure that the direc-

tions from the top actually reach the foot

soldiers below, says dr Costanza Russo, the

Institutes deputy director. Banks have real-

ised that complying with rules is no longer

enough. Some are sending very clear mes-

sages that aggressive selling is not an

accepted practice, and most of them have

sent their employees back to school to attend

ethics and compliance trainingprogrammes.

However, conduct will not improve unless

the culture changes too.

EYs Ms Jackson agrees that ethics

courses are important. But banks must still

have hard frameworks in place to ensure

accountability, to set the risk appetite and to

improve risk transparency.

If you go down the ethics training route,

it has to be explicit case-study based train-

ing, so that when issues come up people

know exactly what to do, says Ms Jackson.

You have to make sure that everyone in the

organisation lives by those values they cant

always put prot rst.

new approaches to banking

10

|

The Banker

|

January 2015

Bank, says: It is a lot easier, but it is not

easy. He should know, this is the second

time he has been through the process of set-

ting up a bank in theUK.

easingup

When Mr Thomson set up Metro Bank in

2008, it was the rst time in more than 100

years that someone had created a new stan-

dalone bank in theUK. Although the regula-

tor at the time the Financial Services

Authority (FSA) had received applications

for new banking brands, these were all set up

as subsidiaries of existing companies, which

already had a banking licence. For example,

Life has got easier for anyone wanting

to set up a new bank in the uk. Simpler

regulation, cheaper technology and political

pressure on the industry to encourage more

competition in the banking sector are just

some of the reasons why the UK is nowmore

likely to see new entrants to themarket.

According to one news report from April

2014, 29 companies are in the process of

applying for a banking licence in the country.

This includesnames such asAtomBank, Star-

ling andLintelBank, all ofwhich are currently

being considered by theUKs regulators.

Of the new licencing process, Anthony

Thomson, founder and chairman of Atom

Banking: thenextgeneration

New approaches to banking

The UK banking industry is opening itself up to new entrants in the hope that this will stimulate greater competition

in the market. The early signs are that innovative new players could be doing exactly that. Jane Cooper reports.

reporT

|

REgULATIOn And STRATEgy

Egg, an online bank launched in 1998, was

created by the banking arm of UK nancial

services provider Prudential; First direct

was a branchless brand from UK bank

HSBC; and Ing direct was a subsidiary of

dutch banking group Ing.

In setting up Metro Bank, there were a

number of challenges owing to the length

and the opaque nature of the authorisation

process, saysMr Thomson.

Another challenge, he says, related to the

amount of regulatory capital the FSA

required a new bank to hold. A minimum

gure was not xed and it kept asking for

more and more, which is not efcient from

Taking steps forward: UK regulators are now far more welcoming to those hoping to set up a new bank in the country

new approaches to banking

January 2015

|

The Banker

|

11

the shareholders perspective, he says.

Access to the payments systems also proved

difcult for a small, new player.

now, Mr Thomson notes, there is a pay-

ment systems regulator in the UK, which

ensures fair access to payments systems for

players of all sizes.

Since his experience with Metro, Mr

Thomson says there has been a real sea

change in the attitude of the UKs regula-

tors. Since March 2013, he says the process

has been simpler and clearer.

MoreopTions

There are now two regulators in the UK

the Financial Conduct Authority (FCA) and

the Prudential Regulation Authority (PRA),

which replaced the FSA in April 2013. But

new bank hopefuls need only apply once to

the PRA, which is the lead regulator for

banks. There are also now two options for

banks to apply for authorisation: option a

and option b. Option a is suitable for com-

panies that already have investors, capital

and technology in place to set a new bank

up quickly.

With option b, banks are able to able to

overcome the old problem of having to make

plans without a licence. Previously, it was

difcult to attract investors and raise capital

without a banking licence and it was equally

difficult to get a banking licence without

investors and plans in place.

Option b is a staged mobilisation route,

and is the option that Atom Bank, Starling

and Lintel Bank have all opted for. Firms can

be authorised based on their business plan

but are restricted from operating as a bank

until they have raised the necessary regula-

tory capital. By gaining regulatory approval

first, it makes it much easier for banks to

thenmobilise the funds from investors.

Atom, for example, has already been

authorised with restriction and is now in the

process of raisingmore capital. In december

2014, it announced another investor Jim

Oneill, the former chairman of goldman

Sachs Asset Management who invested

25m ($49.1m) in the bank, which plans to

launch in 2015.

eMergingcoMpeTiTion

Another new entrant to the UK market is

Starling, which also plans to launch in 2015.

Anne Boden, the banks CEO, says option b

makes things a lot easier before that you

could not hire people or make contracts,

without a banking licence.

Ms Boden explains that there are now

numerous opportunities to discuss an appli-

cation with regulators. A number of meet-

Delivering something

the customer wants is

the most important thing.

Banks have Been far too

focuseD on solving their

own proBlems [rather]

than solving customer

proBlems

Anne Boden

REgULATIOn And STRATEgy

|

reporT

ings are offered, such as a coffee meeting to

discuss the proposition, then the applicant

can send in a business plan and discuss it

with the regulators, then there is a challenge

session. After an applicant has gone through

all these stages, it can then hand in its formal

application, explainsMs Boden.

UK regulators are now farmorewelcom-

ing to those hoping to set up a new bank, an

attitude borne out of a wider political drive

to encourage more competition in the coun-

trys banking sector. Politicians from all par-

ties have been calling for the dominance of

the big four high street banks Barclays,

HSBC, Lloyds and RBS to be reduced,

especially since two of these players, Lloyds

and RBS, needed taxpayer bailouts at the

peak of the nancial crisis.

MakingTheswiTch

One initiative, the current account switching

service,was launched in theUK inSeptember

2013, and is aimed at motivating more con-

sumers to consider switching their current

account to another bank. It was thought that

one of the factors stiing competition in the

UKwas the reluctance of many consumers to

switch to anewbank, becauseof theperceived

difficulties in changing payments to a new

bank account. The scheme simplies the pro-

cess of changing current accounts and also

guarantees the payments, with a promise to

reimburse customers for any charges that

occur for erroneous transactions.

The current account switching service

was a technology project implemented

across the banking industry in theUK.How-

ever, it is not the only new technology mak-

ing life easier for new entrants; other

advances are also helping to make it easier

for new challengers to enter themarket.

now, explainsMrThomson, it is possible

for start-up banks to rent the technology

infrastructure necessary to run a bank rather

than having to buy it or build it themselves.

Atom Bank has opted to use Fiservs soft-

ware for its operations. Fiserv is one of the

rst providers of a simple off-the-shelf tech-

nology package for start-up banks, but Mr

Thomson anticipates that more technology

providers will start offering similar solutions

in the future.

Ms Boden says that Starling has decided

to build its own technology and is aiming to

bring techniques found in Silicon Valley

and used by the likes of Facebook, google

andnetix to theUK banking sector.

splinTergroups

While the UK has seen a number of chal-

lenger brands entering the UK banking

12

|

The Banker

|

January 2015

is an e-money institution that has an

e-money licence from theUKs FCA.

Peter Cox, executive chairman of Contis

group, explains how the company ts into

the payments ecosystem. The company is a

shareholder and principal member of Visa

Europe and is also a Visa-certied processor,

he says, which means that Contis processes

all the transactions for the cards it issues

under its e-money licence for its client

brands. Contis is also connected to the regu-

lar banking payment rails, which allows

funds to be paid into and out of the Ffrees

account via the regular banking network.

We brand ourselves as the home of alter-

native banking, says Mr Cox, who explains

that the companys solutions are also used by

more than 100 credit unions, as well as by

other brands in theUKand theEU.

Ffreesmakes itsmoney from transaction

andmonthly account fees. Although such an

idea would be unusual to most UK consum-

ers whose free bank accounts have been

cross-subsidised by exceptions charges the

Ffrees proposition is attractive to low-

income people who have been stung by bank

charges for being overdrawn. not being able

to go overdrawn is marketed as a key benet

of the Ffrees account.

space such as Virgin, TSB and Williams &

glyn Ms Boden argues that these all use

traditional banking models. And, although

they are new brands, they have been borne

out of older entities. Virgin, for example,

expanded into a retail bank by acquiring

northern Rock. And TSB and Williams &

glyn are brands that have been spun off from

Lloyds Banking group and RBS group,

respectively, in line with an agreement with

European competition regulators.

In return for state aid during the global

nancial crisis, Lloyds and RBS agreed that

they would sell off some of their businesses.

They both opted to separate out these busi-

nesses by reviving old brands, which will be

sold off at a later date.

Ms Boden also points to another trend in

the banking sector: There is a huge amount

of disaggregation in nancial services lots

of people are providing parts of the value

chain. What we are going to do is one thing:

we will do current accounts.

Banks typically offered a range of bank-

ing products to their customers, but now

consumers can get their nancial products

from other sources. This couldmean a credit

card from personal credit card provider

MBnA, a peer-to-peer loan from peer-to-

peer lending service Zopa, or a current

account from another niche provider.

ane-soluTion

Alex Letts, CEO and founder of UK-based

Ffrees Family Finance, talks of a compo-

nentisation of the industry, where different

nancial products can be provided by differ-

ent players and not a single bank. Ffrees

offers a current account, which is targeted at

the unbanked segment in the UK. Although

it functions in the same way as a bank

account, the Ffrees solution does not need a

banking licence behind it.

European regulations through the

E-Money directive allow the creation of

electronic money institutions that can issue

e-money. Prepaid card programmes have

proliferated under this regulation and

the Ffrees account is an evolution of such

a product.

In 2009, the second E-Money directive,

which was implemented in the UK in 2011,

made it easier to become an e-money issuer.

There are now no initial capital require-

ments for small institutions that have less

than 500,000 of e-money outstanding, on

average. Institutions with more than this

must hold initial capital equal to 2% of their

average outstanding e-money total.

The Ffrees account is provided and

licenced by Contis Financial Services, which

reporT

|

REgULATIOn And STRATEgy

new approaches to banking

The account is not a deposit account

such as those offered by banks with banking

licences and so it does not pay interest on

the balances. Another difference is that pre-

paid programmes are not covered by the

UKs Financial Services Compensation

Scheme. However, customers funds are

held in a segregated account, so if the issuer

of the prepaid programme were to run into

trouble, it would be protected from the

companys creditors.

When asked if Ffreeswould ever consider

applying for a banking licence,Mr Letts says:

This is not in our thinking. The whole point

of running on the e-money rails is to be able

to create a business model that out-competes

the banks and the new challenger banks with

their streamlined services in the core current

account business. It means we dont carry the

regulatory and capital burdens that the

deposit takers face.We do not intend tomake

a land-grab for the other services offered in

the banking ecosystem.We intend to own the

heart, not the limbs!

hoMingin

Ms Boden says that Starling has a stream-

lined strategy, with the current account at

the heart of the banks operations. The

mobile banking proposition will help peo-

ple with their personal nances. For exam-

ple, when a cheque comes into the account,

the bank will notify the customer and will

also alert them if it is more or less than they

were expecting.

Wewill predict for them howmuch they

will have left until the end of themonth, says

MsBoden. The target group is 18- to 35-year-

olds, who Ms Boden says usually manage

theirmoneywell for the rst twoweeks of the

month but, after that, things may get prob-

lematic. We are helping people so they do

not go overdrawn, she says.

When asked what the key to building a

new sustainable bank is, Ms Boden says:

delivering something the customer wants is

the most important thing. Banks have been

far too focused on solving their own problems

[rather] than solving customer problems.

For Mr Thomson at Atom, success and

sustainability rest on two things. The rst, he

says, is the strength of the proposition and

having a good business plan. The other is the

strength and experience of the management

team, as well as the oversight and govern-

ance through a high-calibre board of non-

executive directors.

Putting together a team and building a

strong proposition in this way is not easy, but

at least now with simpler regulation in the

UK it does become a lot easier.

[the regulator] kept

asking for more anD

more [capital], which

is not efficient from the

shareholDers perspective

Anthony Thomson

BKR SUP COV 0115EY_BKR_050115_p001EY_BKR_050115_p002EY_BKR_050115_p003EY_BKR_050115_p004EY_BKR_050115_p005EY_BKR_050115_p006EY_BKR_050115_p007EY_BKR_050115_p008EY_BKR_050115_p009EY_BKR_050115_p010EY_BKR_050115_p011EY_BKR_050115_p012