FCA: People pushed towards payday loans and BNPL
The Financial Conduct Authority says the cost-of-living crunch is pushing people toward payday loans and buy-now pay-later (BNPL) products. The regulator’s chief executive, Nikhil Rathi, warned that rising prices have pushed people into debt, with many still unable to access financial products. FCA analysis shows that the number of people in financial difficulty rose from 8% in May 2022 to 11% in January 2023, while the proportion finding it a “heavy burden” to pay bills increased from 15% to 21% in the same period. It also shows that 1.1m people – 2.1% of the population – are without a bank account and unable to access normal credit products. Mr Rathi also highlighted that the FCA has secured changes to “potentially unfair and unclear terms” in the contracts of BNPL firms Clearpay, Klarna, Laybuy and Openpay.
Banks warned over impact of high rates
The Bank of England has warned banks against underestimating the scale of losses they could suffer from defaults on bad loans as a result of rising interest rates. Writing to the chief financial officers of big lenders it supervises, the Bank said it wants them to model severe economic stresses that could result in loan defaults and credit losses. Vicky Saporta, executive director of the Bank’s prudential policy directorate, wrote: “We encourage all firms to consider additional, more severe but plausible, economic scenarios that encompass shocks affecting those sectors or segments most vulnerable to higher inflation and interest rates.”
Redwood Bank to list in reverse takeover
Redwood Bank, co-founded by Jonathan Rowland, is set to list on the London stock market through a reverse takeover of R8 Capital Investments. The deal is expected to be announced today and will seek around £20m of new capital for the bank's future growth. Redwood Bank plans to acquire other lenders and loan books to diversify into a full-service bank.
Revolut attracts UK watchdog scrutiny over red-flag accounts
The Financial Conduct Authority is in talks with Revolut over the fintech’s alleged failures to prevent money being released from accounts flagged by the National Crime Agency as suspicious. The issues, which occurred in July and August, would have allowed up to £1.7m to be released from the flagged accounts, sources told the FT.
HSBC executive to leave after criticising UK’s stance on China
HSBC's head of public affairs, Sherard Cowper-Coles, is stepping down from his position, having apologised for saying the Government had been "weak" in its dealings with China due to pressure from the US.
Wells Fargo sells $2bn of private equity investments
Wells Fargo has sold approximately $2bn of its private equity investments as part of its efforts to focus on its core businesses. The investments were sold to a group of buyers including Carlyle Group's unit AlpInvest Partners, Atalaya Capital Management, Lexington Partners, and Pantheon. Lazard advised Wells Fargo on the deal.
Carlyle eyes medical device businesses
Private equity firm Carlyle Group is in exclusive negotiations to acquire a majority stake in two medical device businesses of Medtronic at a valuation of over $7bn. The units would be moved to a new company majority-owned by Carlyle, with Medtronic retaining a stake of over 35%. Medtronic is looking to streamline its portfolio and focus on higher-growth assets.
UBS settles with Mozambique over "tuna bond" scandal
UBS has settled with the government of Mozambique over Credit Suisse's alleged involvement in the $2bn "tuna bond" scandal. The out-of-court deal was struck just before a three-month trial was due to begin in London's High Court. The dispute centred around a 2013 deal in which Credit Suisse helped to arrange $2bn worth of loans and bond issues for Mozambique to help fund maritime projects. The deals were found to have involved hidden debts and bribes, resulting in Mozambique's donors, such as the International Monetary Fund, cutting off financial support and triggering a slowdown for the country's economy. Separately, UBS has denied knowledge of a US Department of Justice probe into alleged sanctions-related compliance failures. The bank states that it is not aware of such a probe and that it has significantly reduced its Russia-related exposure.
US crypto leaders say SEC overstepped with Binance allegations
Influential US crypto industry leaders, including Circle Internet Financial and Paradigm Operations, have submitted filings arguing that the Securities and Exchange Commission (SEC) overstepped its authority when it filed charges against Binance in June. The SEC alleged that Binance engaged in an extensive web of deception and evasion of the law. Paradigm stated that the SEC has pursued an incoherent approach to regulating cryptoassets, while Circle, which issues the USDC stablecoin, submitted a motion of support for neither party, protesting the SEC's decision to treat Binance's BUSD stablecoin as an unregistered security.
SEC fines 12 companies over record keeping failures
The US Securities and Exchange Commission (SEC) has fined 12 companies, including brokers, investment advisers, and credit rating firms, a total of $79m for record-keeping failures. Credit rating agencies DBRS and Kroll Bond Rating Agency also agreed to pay civil penalties for their record-keeping failures. The SEC stated that employees at both firms failed to preserve electronic communications, including off-channel messages on personal and work-issued devices. DBRS was additionally charged with violations related to the ratings of certain commercial mortgage-backed securities. The enforcement action is part of the SEC's two-year crackdown on Wall Street's use of unapproved messaging apps.
Three major US banks fined for swap-reporting failures
The US Commodity Futures Trading Commission (CFTC) has ordered Goldman Sachs, Bank of America, and JP Morgan to pay a total of over $50m to settle charges of swap reporting failures and other violations. JP Morgan, Bank of America, and Goldman Sachs will pay civil monetary penalties of $15m, $8m, and $30m, respectively. Goldman Sachs was penalised for failing to diligently supervise its swap dealer activities and for "unprecedented failures" in swap data reporting. JP Morgan was fined for violations related to swaps reporting, while Bank of America was penalised for failing to diligently supervise swaps reporting and comply with swaps reporting obligations.
Credit Suisse faces $2bn Q3 loss
Credit Suisse has warned that it may face a $2.2bn loss in the third quarter as it deals with legacy loans and problematic parts of its business. The Swiss bank, which was taken over by UBS in March, expects to face a loss of around $1.6bn from exiting loans held in the non-core and legacy division. Credit Suisse also confirmed it has decided to wind down certain management arrangements, which could result in a loss of up to $600m in Q3. UBS estimates that about half of the $55bn of risk-weighted assets included in the non-core division will run off by the end of 2026. The report also showed that Credit Suisse's workforce had dropped by 13% over the past year.
Review highlights importance of sanctions systems and controls
A Financial Conduct Authority (FCA) review has highlighted the critical role of financial services firms' sanctions systems and controls in preventing financial crime. The FCA assessed more than 90 firms across various sectors, finding examples of good practice but also areas for improvement. Firms that had prepared for potential sanctions prior to the Russian invasion of Ukraine demonstrated a more effective response to UK sanctions implementation, with the ability to monitor and evaluate the efficacy of sanctions through management information a pivotal factor. However, some firms struggled to provide senior management with adequate information regarding their exposure to sanctions. The review also identified issues with resource allocation, customer due diligence procedures, and timely reporting of potential breaches. Firms are urged to consider the review's findings seriously and take corrective measures where necessary. "Firms must heed the FCA's findings, adapt swiftly, and engage with the FCA to enhance their sanctions readiness," the City watchdog said.
New rules for insurers of leasehold buildings
The Financial Conduct Authority (FCA) has announced that insurers must act in the best interests of people who own flats in apartment blocks and other leaseholders, saying firms will have to treat leaseholders as customers when designing products. Insurance firms will also be banned from recommending insurance policies based on the level of commission or remuneration they can get. The FCA says that while typical commissions range from 30% to 49%, some are as high as 62%. Sheldon Mills, the FCA’s executive director of consumers and competition, said: “Insurance firms must now act in leaseholders’ best interests and ensure that their policies provide fair value,” adding: “Our reforms will help to strengthen the insurance market by providing new protections for leaseholders.” In 2022, the FCA found that insurance premiums had risen significantly for leasehold buildings after the Grenfell fire.
Rathbones appoints CFO
Rathbones has appointed Iain Hooley as its chief financial officer, following the departure of Jennifer Mathias. Mr Hooley previously served as finance director and CEO of the UK unit at Investec Wealth. Ms Mathias will take on the newly created position of group chief of staff to support Rathbones' acquisition of Investec's UK wealth business. The deal, valued at £839m, was announced in April as part of the company's strategy to scale up in the high-growth wealth sector.
LEISURE & HOSPITALITY
Pubs closing at 'alarming rate'
Pubs in England and Wales are closing at an alarming rate, with two shutting down every day. A new report by think-tank Localis shows that closures have surged by 50% in the past three months, with 230 pubs disappearing from local communities. Rising costs, staffing shortages, and reduced margins have created a challenging environment for the sector.
Blackstone acquires two UK country clubs
Blackstone has acquired Dalmahoy Hotel and Country Club near Edinburgh and Marriott Forest of Arden Country Club near Birmingham from Abu Dhabi's sovereign wealth fund. The acquisition is part of Blackstone's expansion strategy for Warner Leisure Hotels. The private equity firm plans to spend over £100m on refurbishments for both properties.
BAE secures £4bn contract for Aukus attack submarines
BAE Systems has won a £3.95bn contract to build a new generation of attack submarines under the trilateral Aukus security pact. The agreement between the UK, the US and Australia, will see the submarines supplied to Australia to counter China’s ambitions in the Indo-Pacific. They will also be operated by the UK, replacing the current Astute class. Babcock has been awarded a five-year contract for detailed design work on the submarines.
MEDIA & ENTERTAINMENT
Axel Springer expresses interest in takeover of The Telegraph
Axel Springer, Germany's biggest news publisher, has expressed interest in a takeover of The Telegraph, almost two decades after losing out in the previous auction. The Berlin-headquartered company, which owns newspapers like Bild and Die Welt, as well as international titles including Business Insider and Politico, has notified Goldman Sachs of its desire to participate in the forthcoming sale of the newspapers. The auction is expected to begin formally within weeks. Potential rivals to Springer this time include hedge fund manager Sir Paul Marshall and DMGT, the owner of the Daily Mail. The Barclay family, previous owners of The Telegraph, have also made bids to regain control. Lloyds Banking Group seized control of The Telegraph in June.
August home sales up on July but down on a year ago
HMRC data shows that 87,010 homes were sold in August, with this 1% more than July’s total but 16% lower than the total recorded in August 2022. On the month-on-month increase, Iain McKenzie, CEO of The Guild of Property Professionals, said: “Another uplift in property sales is a positive sign that the industry is recovering after a slow first half to the year. “ He said that while year-on-year there was a “significant” drop off in sales, it is “nothing different to what we were forecasting at the start of the year.” He added: “If anything, our predictions of an overall fall of 20% for 2023 may even be revised thanks to the consecutive months of increases we have seen.” Meanwhile, Bank of England data shows that mortgage approvals fell to their lowest level in six months in August, with high interest rates cooling the housing market. Net mortgage approvals for house purchases fell from 49,500 in July to 45,400 in August.
Economy has grown faster than previously estimated
The UK economy has grown faster since the start of the pandemic than initially thought, according to Office for National Statistics (ONS) figures. Revised data shows that the economy has grown by 1.8% since the pandemic started. The previous estimate had pointed to a 0.2% contraction. Revised figures for Q1 2023 also show that the economy expanded 0.3% - up from the 0.1% previously estimated. The estimate for Q2 was unchanged at 0.2%. The latest ONS figures mean that the UK's growth since the pandemic exceeds the 1.7% recorded in France and Germany’s 0.2% increase. Chancellor Jeremy Hunt said: "We know that the British economy recovered faster from the pandemic than anyone previously thought,” adding that the fresh data “once again proves the doubters wrong.” However, Ruth Gregory, deputy chief UK economist at Capital Economics, said the update from the ONS “does not change the big picture that the economy has lagged behind all other G7 countries aside from Germany and France since the pandemic. And that's before the full drag from higher interest rates has been felt."
FCA broke data protection rules by intercepting and diverting emails
The UK's Financial Conduct Authority (FCA) has been found to have broken data protection rules by intercepting and diverting emails. The Information Commissioner's Office concluded that the FCA had infringed their data protection obligations after a former staff member complained about the policy. The FCA confirmed that diverts were applied to all its communications channels, including whistleblowing, independent inquiries, complaints and general consumer queries. Individuals considered aggressive or problematic has their emails automatically diverted to a designated individual within the authority who would then decide whether, and when, the correspondence was forwarded to the intended recipient. The policy, allegedly signed off by the office of Andrew Bailey, then the FCA chief executive and now Bank of England governor, compromised the integrity of the FCA's confidential channels and exposed personal and confidential information. The FCA is now facing calls to compensate those affected by the policy. The regulator has repeatedly denied that the policy breached GDPR, but after the intervention of the Information Commissioner's Office, it admitted its mistake.