Wednesday, 23 May 2018

Renewed Calls for the Break-up of the “Big Four” Audit Firms: Another Example of “Divergence”?


In today’s post, the focus will be on the so-called “Big Four” audit firms – PwC, KPMG, Deloitte, and E&Y – after details of the collapse of construction firm Carillion continue to have a significant effect. We will examine these calls to dismantle the long-standing oligopoly, but there will be a discussion about what these calls actually mean. This author has advanced the notion of a ‘divergence’ existing when it comes to regulating oligopolies (specifically in relation to the Credit Rating industry), and it will be discussed whether this is the case in this particular instance also. There will also be some reference to a forthcoming book by this author on this very topic.

The calls for the dismantling of the audit oligopoly could stem from a number of instances in reality, but the current calls stem from the collapse of Carillion. We have covered this collapse here in Financial Regulation Matters since the first warning-signs were uttered, but the revelations regarding the passive action of the associated auditors before the company’s collapse have renewed calls for a new approach to how auditing services are provided. With auditors being accused of ‘lining their pockets’ in relation to Carillion, the Labour Party has been extremely vocal in calling for the oligopoly to be dismantled. John McDonnell recently declared that if his party was to come to power, then the firms would no longer be able to ‘act like a cartel’. He also declared that ‘there will be no more Carillion on Labour’s watch’. Essentially, McDonnell is taking aim at the regulatory framework, which was confirmed when he continued his attack by discussing the number of regulators in the field, and also the fact that a number of key market participants are essentially self-regulated. These calls have been echoed, in a loose sense, by others including the chief regulator for the sector in Britain, the Financial Reporting Council. Whilst not seeking the dismantling of the oligopoly, the FRC have launched an investigation into whether the firms should be forced to ‘spin-off’ their auditing businesses, with the result being that there are rumours that the firms are actively preparing for the onslaught coming their way. However, are these claims, suggestions, and investigations all as they seem?

Whilst McDonnell was adamant in his view that there will be no more collapses like Carillion on his (and his Party’s) watch, that is a tremendously easy thing to proclaim when one has no power. Perhaps the reality is slightly different if we consider that the collapse of Carillion was, fundamentally, because of deep-rooted systemic issues rather than simple policy ones as McDonnell’s sentiment suggests. This leads us nicely to this concept of a ‘divergence’ being in operation. In the author’s forthcoming book Regulating the Credit Rating Industry: Restraining Ancillary Services (to be released in August), this concept of a ‘divergence’ is presented in detail, but for our purposes a simple explanation will suffice. In relation to the credit rating industry, the ‘divergence’ exists when regulators and legislators take aim at the industry and introduce measures such as increasing competition; the ‘divergence’ relates to a ignorance of a simple reality that is the very nature of an oligopoly is that competition is fundamentally reduced. Another simple reality of an oligopoly is that, whether directly or indirectly, the oligopoly by its design works together to protect itself; this can be done in a number of ways but an obvious and representative method is a member of the oligopoly never deviating from accepted methodologies in relation to their practice, so as to not cause a significant disturbance to the marketplace – this is a key component of the ratings industry, and the same can be seen in the audit industry if one looks closely enough.

Yet, the biggest issue with the current wave of criticism is that it pays not attention, whatsoever, to the history of the sector. The rating industry is over 160 years old but that pales in comparison to the audit industry. As a result, the firms are actually gargantuan businesses with their operations being truly global in size, which has the effect of making them a. extraordinarily wealthy and b. extraordinarily influential. The obvious claim to make is that this will allow the firms to protect themselves rather adequately in the facing of the oncoming regulatory pressure, but history tells us that McDonnell’s vision will, unfortunately, never come to fruition. If one examines developments within a given financial sector (particularly with financial service providers), and studies those developments in parallel with a study of the economic cycles, one will quickly realise that we have been here before. In the wake of the Enron scandal, the auditing industry came in for massive amounts of pressure, and as a result were forced to divest from their consulting businesses which lay at the root of the scandal. Whilst the rating industry would both learn and profit from the divestment (the model was fundamentally incorporated by the agencies [as described in the forthcoming book] and many of the consulting components were swallowed up by the CRAs), the audit sector would go on to simply bide their time until the economic cycle swung back to a boom – only a handful of years passed before the firms were allowed to build up these divisions again under a different moniker. It surprises this author greatly that the audit firms did not come in for more criticism in the wake of the financial crisis, because they were indeed involved, but perhaps they had learned not to be so brazen in their practice – the rating agencies are presumably going through that very same process as we speak. Yet, it is difficult to be optimistic when one studies history, because it is more than likely that once ‘regulatory amnesia’ sets in, as it will, then the chances of the audit industry having its influence lessened becomes an illusion that is, in reality, probably damaging on the long-run. The effect of this understanding is that it leads to political questions that have no real answer (perhaps). Examining McDonnell’s claims, is it the case that he fully intends to ensure that Carillion-type scandals can never happen again and that he will dismantle the audit oligopoly, or is it the case that these issues are making the headlines and his claims are the obvious ones to make when playing the position of the opposition? The aim here is not to criticise McDonnell nor doubt his integrity, but it is important to remember that this is politics and with that come a whole host of connotations. The sentiment put forward here is that if one aims at an industry as it should be without considering how that industry performs in reality, then that divergence leads to misapplied regulation, which has the effect of maintaining the dominance of that particular industry.

The author’s specialism is in the field of credit ratings, and it can be seen quite clearly in that sector that the divergence that surrounded post-crisis endeavours has actually strengthened the rating oligopoly, not weakened it. It is likely that this current wave of anti-audit sentiment will do the same if such large-scale measures like dismantling the oligopoly are the aims. In a forthcoming book by this author entitled Regulating Financial Oligopolies (to be released in 2019), the focus is on this very divergence and how the regulators see the actual process of regulating an oligopoly, and more important how they consider it when taking regulatory action. The underlying thesis to many of this author’s works is that incremental regulation is optimal, rather than large-scale headline-grabbing regulation that is rarely effective; limiting the effect of these financial oligopolies and guiding them towards fulfilling their function rather than exploiting their engrained positional advantage is surely more of a practical aim that outright destruction of oligopolies that are centuries old. With that in mind, it appears the opposite sentiment will be incorporated in the near regulatory future of the audit industry, and unfortunately that sentiment only ever has one consequence – failure.


Keywords – audit, politics, business, law, financial regulation, credit rating agencies, oligopolies, @finregmatters.

Thursday, 10 May 2018

The ‘Sword of Damocles’ Drops on RBS

For months we have been discussing the impending fine that RBS was facing from the US DoJ with regards to their behaviour in the lead-up to the Financial Crisis, and today RBS learned its fate. In this third and final brief post today, we shall look at the details of that fine and examine both the sentiment it creates, and any potential effect it may have upon RBS as it continues its attempt to drag itself from a scandal-ridden decade.

The issue of RBS being fined by the DoJ has been on the table for quite some time, with a number of elements coming in to play as RBS and investors struggled to predict the outcome. We spoke recently about how even the British government had inserted itself into the dynamic (lest we forget, the UK Government is the majority shareholder in the bank), and it seems that for all parties concerned, apart from the victims and the public of course, today’s announcement will be being toasted in the offices of the bank (and likely the Government) at the time of writing. The bank has agreed a $4.9 (£3.6) billion penalty with the DoJ, which led CEO Ross McEwan to proclaim that ‘today’s announcement is a milestone moment for the bank’ and that ‘our current shareholders will be very pleased this deal is done’. That is not surprising given that estimations beforehand were that the bank would be forced to pay anywhere up to $9 or $10 billion.

There was an instant impact, with share prices immediately rising and, as cited in The Guardian, the likelihood now being that the Bank will now be able to pass the Bank of England’s stress testing mechanisms. However, there is likely to be an even greater impact moving forward. In a previous post today we discussed the concept of ‘amnesia’ within the financial sector, and developments such as these are often the very moments that initiate that amnesia. That is not to say, of course, that the bank should be prosecuted consistently, but it is the sentiment that these moments cause which is the issue. The sentiment from the business press, and RBS themselves, have not been ‘let us put this issue behind us finally and seek to really address the underlying problems that caused such poor behaviour’, but more ‘let us put this issue behind us finally and get back to making money and providing dividends’; one may argue those two sentiments are closely related, but they are not. One has within it the conscious effort to re-develop the bank’s obviously transgressive approach, the other has the aim of returning to a ‘results at whatever cost’ attitude that led to the bank being charged almost $10 billion all told – the continuation of these sentiments is remarkable, but only when you do not pay attention to the systemic issues within the sector. It is unfortunate, but as the Bank continues to be the archetypal transgressive banking institution – its performance in relation to the GRG unit is appalling – the reality is that it is just one small component of a larger system that is designed, or has been adopted to continuously milk society; today’s announcement is a victory for RBS and the UK Government, but in truth it is a clear indication that it is ‘business as usual’.


Keywords – Banking, RBS, politics, business, DoJ, @finregmatters

Andrew Tyrie Returns

This very brief post reacts to the news that Andrew Tyrie has taken control of the Competition and Markets Authority. In a previous post where were reviewed Tyrie’s work as head of the Treasury Select Committee, we asked where would Tyrie go next and what impact will he have? Now we know, it would be good to provide a brief review of his new endeavour and examine the importance of his appointment.

As stated above, we asked in a previous post where would Tyrie go after he left the Treasury Select Committee. Last month we received our answer when it was announced that he would be taking over the lead of the Competition and Markets Authority, the UK’s leading competition regulator. In taking over, Tyrie announced that, in his belief, ‘competition can and should be put even closer to the centre of British economic life, reaching every sector, rooting out monopoly and unfair trading practices, and enhancing Britain’s global competitiveness’. The Guardian raises the point that Tyrie is taking over at a crucial juncture for the regulator, and the very briefest of reviews into recent news regarding competition describes just why that is. We looked at this issue in October last year, and since then there have been more cases of issues that the regulator will be forced to face. Not only are there massive deals being negotiated that would cause competitive concerns, like Sky and Fox’s protracted negotiations and Tesco’s takeover of Booker, but news recently that Sainsbury’s and Asda are considering merging only adds to the workload of this ever-busy regulator.

Across the business media, Tyrie’s appointment has been roundly applauded, and this is mostly because of his effectiveness whilst in charge of the Treasury Select Committee. However, his appointment will be extremely interesting to monitor, because it is worth questioning whether his performance was due to his character, or that of the Treasury Select Committee – Nicky Morgan, since taking over from Tyrie, has been particularly forthright in her battle with some of the leading financial figures, with her performance over the RBS GRG scandal earning rave reviews. Yet, regular readers of Financial Regulation Matters will be more than aware that this author is often particularly scathing of Conservative MPs and their policies, but in Tyrie there exists somewhat of a contradiction. He earns praise from across the board, and it is easy to see why – taking on such industrial powerhouses, and often winning, is no easy feat and Tyrie has developed a reputation for doing just that – it is indeed a very positive thing. Yet, one has the nagging feeling that it is the Treasury Select Committee which is the real vehicle for those sorts of interventions, so it will indeed be fascinating to see how Tyrie conducts himself in his new role.


Keywords – Andrew Tyrie, Politics, Regulation, Competition, @finregmatters.

Financial Whistle-Blowing Under Siege: Lloyds and the Latest Attack

This first of three brief posts today looks at a subject we have covered here in Financial Regulation Matters a number of times, and that is the concept of a financial whistle-blower. The story we have covered most is the story of Jes Staley, the CEO of Barclays (here and here), but although that case resulted in a (relatively) small fine, news recently suggests that the protections afforded to financial whistle-blowers need to be strengthened much more, both in light of the recent actions of leading members of the financial services but also because of the period that we are in – making sure transgressions in the financial sector are identified and expressed (either publically or to regulators) is crucial as we move away from the last financial crisis.

There are a number of issues affecting Lloyds at the moment, but most stem from their takeover of HBoS and the fraud that was uncovered within a division in Reading. We have covered this story a number of times (here), but the sentiment put forward by Lloyds is that the transgressions all took place before the takeover, and that they had no knowledge of the purposeful destruction of many SMEs. It was reported as far back as October 2017 that Lloyds’ behaviour towards their whistle-blowers was ‘disgraceful’, firstly by making those whistle-blowers ‘prove they were victims’, and then in January 2018 it was reported that a whistle-blower who had formulated a damning report into the scandal in 2013 had been made redundant without the necessary compensation. More recently, the Financial Times has reported that Lloyds tried to ‘silence’ the whistle-blower and that, contrary to the bank’s claims, the Reading Fraud had been discussed in internal emails within Lloyds as far back as February 2008. The effect of this is that Lloyds has been catapulted into the limelight over the protections it offers to whistle-blowers, which of course is a vital component against ‘white-collar crime’.


The Police Commissioner’s suggestions have been refuted by the Bank, but with investigations continuing into the scandal there is a likelihood that more revelations will surface regarding the knowledge Lloyds had which will then impact upon the perception of actions they have taken since. This is an extremely negative chain of events, but there is one positive in that the concept of the whistle-blower has been forced into the limelight at a time when that concept is as vital as ever. When one considers the cyclical dynamic of the economy, then one can see that we are potentially moving into a phase whereby ‘amnesia’ sets in and trust is restored in the very same system that created the last crisis – that phase is not quite upon us yet, but it is not far. Claims to act in a counter-cyclic manner in terms of regulation are very sensible and would eliminate the current rate of a crisis of some sort occurring every ten years (arguably), but the chances of those claims being recognised and implemented as the calls for ‘growth’, ‘development’, or another buzz word that is consistently used to enable the financial sector to return to its ways are very slim indeed, unfortunately.

Keywords – Lloyds, HBoS, Banking, Fraud, Whistle-blower, @finregmatters.

Saturday, 5 May 2018

Consequences Begin to Build for Wells Fargo

In this brief post, the focus will be on updating the stories we have covered in the past here in Financial Regulation Matters regarding Wells Fargo and their performance over the past decade or so. The last time we covered the scandal that has blighted Wells Fargo’s progression was in May of last year, and since then there have been a number of developments. However, very recently, the bank has received a number of fines which demonstrate the failures that have left the bank struggling to regain the trust it needs to move forward.

We last looked at Wells Fargo this time last year, and in that post we looked at the actions of a bank who fraudulently created between 2 and 3.5 million fake bank accounts for the purposes of selling services to customers who often were not aware of the actions taken on their behalf. We covered the details of the fraud in those previous posts, so today it is worth looking at the legal reaction to that fraud. We begin at the end of last month when the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency took action against the bank: each agency has fined Wells Fargo $500 million (so, $1 billion total) for transgressions in relation to car insurance payments, amongst other things. Wells Fargo was suspected of charging more than half a million customers for car insurance they did not need, whilst 20,000 of those clients subsequently defaulted and suffered repossession as a result of the inappropriate charges. The charges also related to mortgage lending practices, where the bank was charging customers for delays on ‘mortgage interest locks’, even though those delays had been caused by Wells Fargo themselves. In response to these penalties, the bank has agreed to work with the regulators to strengthen their compliance procedures, which both regulators identified as having failed in its mandate.

These fines are on top of what has already been levied against them with regards to the accounts scandal, with it being reported that the bank has already been mandated to pay more than $1.5 billion already. On Friday, that figure increased with the news that the bank has ‘reached an agreement in principle’ to settle a class-action lawsuit brought against it by its shareholders for the reported total of $480 million. The bank’s investors have stated that there had been ‘misstatements and omissions’ from key financial documents, which had the effect of artificially inflating its stock price. In response to this development, the bank suggested that its problems may not be over, with it being suggested that the bank will need to find $2.6 billion more than what it set aside to cover the actions taken against it (both in relation to the accounts scandal and the auto/mortgage misdeeds).

It is clearly a very chastening time for the bank, and it is right that these transgressions are coming to light. It was interesting to read Warren Buffett’s comments on the bank recently – Berkshire Hathaway maintains a 9% interest in the bank – when he insinuated that the practices within the bank are not much different from other banks its size. Buffett and his approach will be discussed in a forthcoming post that is related to an article this author has recently produced regarding the effect Buffett has upon his businesses, but the sentiment he provides is a negative one; it is not enough to say ‘they all do it’. Wells Fargo is rightly being held up as a clear demonstration of the excesses within the financial sector, and even more so the invasive potential of a commitment to ‘short-termism’. It would be comforting to suggest that Wells Fargo will suffer serious and long-standing consequences for their actions, as they surely should, but the reality is that they will not. The reality is that they will pay their fines with the people responsible for initiating such practices long gone because, as we saw in the last post, those leaders were allowed to leave with compensation, rather than facing the punishment that most would in any other circumstance.


Keywords – Wells Fargo, Banking, US, crime, fraud, @finregmatters

Friday, 4 May 2018

Article Preview – ‘Credit Rating Agency Regulation: Has the “Rule 17g-5 Program” Worked?’ – International Company and Commercial Law Review

In today’s post, the focus will be on a recently accepted article produced by this author. The article, which is concerned with examining a particular aspect of the post-Crisis regulatory approach to affecting the industrial structure of the ratings industry, has recently been accepted by the International Company and Commercial Law Review. This author has examined this particular aspect of the U.S. response to the Crisis before in a previous article, but from a different perspective; in this article, the emphasis is upon using the time that has passed since the establishment of the provision to examine whether it has had any effect and, if not then why not.

The provision in question is a very small section of the Dodd-Frank Act 2010, and whilst the section covers a few aspects the article is concerned with the attempt to encourage competition within this particular sector. The multiple aspects can be best classified as the ‘Rule 17g-5 Program’ and it was the Dodd-Frank Act that amended the relevant sections of the Exchange Act of 1934 which is the relevant Act in the U.S. when it comes to governing the securities markets. The new provisions take aim at a number of aspects, including the relationship between the commercial and rating elements of the rating agencies, the relationship between the agencies and issuers who use the ratings of a given agency over a certain threshold, and also the independence of ratings analysts. For the article however, the focus is upon a system that was established which was designed to break, or at least lessen the barriers to entry. The system itself attempts to achieve this aim by way of allowing non-commissioned rating agencies the same information that commissioned rating agencies receive from issuers, with the sentiment being that the non-commissioned agencies would conduct ratings in parallel to the commissioned agencies to act as a sort of ‘check’ within the marketplace. Technically, the commissioned NRSRO (Nationally Recognised Statistical Rating Organisation) would create a password-protected internet site whereby the information would be stored, and non-commissioned NRSROs could apply to gain access to the information. One underlying sentiment of the provision is that this procedure would allow lesser known agencies to gain recognition and reputation by way of producing accurate ratings. However, there are a number of issues with this procedure, and they are identified and examined within the article.

Perhaps the biggest issue is that attempting to affect an oligopolistic industrial structure takes a concerted campaign, not just a small amendment to procedure. This author has argued this on a number of occasions, but in this author’s forthcoming monograph Regulating Credit Rating Agencies: Restricting Ancillary Services, the point is made that the problems that have (and continue to) emanate from the credit rating industry, in part, stem from a misaligned regulatory focus – regulators continue to develop actions that take aim at the desired version of the industry, and not the industry as it actually operates. This divergence is demonstrated here on a number of levels. Firstly, there is a time-delay in the non-commissioned NRSROs receiving of the information, which serves to reduce the effectiveness of any rating they produce. Secondly, only NRSROs are allowed to request access, and for an agency to gain NRSRO status they must be ‘nationally recognised’, which means they really should not have to undertake certain actions to gain reputation anyway. With that in mind, the next issue is that the provision is asking for-profit rating agencies to produce ratings and not receive compensation for their efforts, which is one of the more obvious reasons as to why no ratings have been produced under the 17g-5 Program. All that has been produced so far are ‘commentaries’, which have been discredited on the basis of allowing for agencies to promote their own services to the detriment of others. In another example of the divergence, regulators/legislators have seemingly overlooked the position of issuers, who have responded in a predictable manner to the Program – to protect themselves, they have endeavoured to essentially codify the majority of their information as ‘confidential’, meaning that the information contained within the password-protected sites is rarely enough to allow for an effective rating to be constructed.

There are a few other issues with the Program which are discussed in the article. However, the article proposes that the Program can be a vehicle for positive change in the industry, but that its parameters must be reconsidered in order to make it so. There are a few aspects which need to be changed to bring about this reality, but the clearest one is that the NRSRO designation attached to the Program needs to be removed. The previous article introduced this point from within the dynamic of non-profit rating agencies; the first article identified the International Non-Profit Credit Rating Agency and the Credit Research Initiative as just two offerings which could fill this proposed role for a number of reasons. These non-profit offerings, in theory, perfectly demonstrate the characteristics the 17g-5 Program calls for: they will be able and willing to produce ratings without looking for compensation, they require a reputational increase to compete, and they are perceived as independent (in theory) by the marketplace on account of not being blighted by the ‘issuer-pays’ remuneration model. The first article argued that these two initiatives should be merged together to encompass their relative skillsets (sovereign and corporate bond ratings), which would only further add to the effectiveness of the 17g-5 program.

Ultimately, it is important to consider such regulatory initiatives as progressive, although there is still plenty to be done. The credit rating agency problem that persists can be lessened to some extent, but essentially the regulators and legislators must fundamentally incorporate the reality of the situation into their considerations. It was clear that issuers would rebel, and also that CRAs would not be inclined to provide what are essentially free ratings to the marketplace (particularly when they are for-profit agencies). Yet, whilst it is important to remain positive, it is difficult to overlook the fact that 8 years from the Dodd-Frank Act, very little has changed in this industry – the oligopoly is now even more prevalent than it was, the record-breaking fines have been easily absorbed by the two leading agencies, and their core practice of protecting their methodological freedom has been maintained. As this author focuses solely on the ratings industry, it is important to note that the aim is not dismantle the ratings industry (as some scholars have suggested), but simply to establish provisions which make the traditionally transgressive approach of the industry something which operates within defined constraints. Aspects such as those have been proposed in a number of works by this author, but initiatives such as the Rule 17g-5 program can be a positive factor if it is incorporated and progressed in a realistic manner.


Keywords – Credit Rating Agencies, SEC, United States, Financial Regulation, @finregmatters

Tuesday, 1 May 2018

Updates from the Banking Sector

Owing to the dynamics of the academic year, there has been somewhat of a lull recently here in Financial Regulation Matters, so to get up to speed a round-up of developments within the banking sector seems like a good place to start. There have been a number of developments since the last post, so today we will work our way through them as efficiently as possible; the underlying sentiment is that the developments portray a sector that is consistently changing since the Crisis, with a number of aspects of that said Crisis continuing to play out (rather unsurprisingly).

We start with our old friends RBS, who have taken up a large amount of space in Financial Regulation Matters, mostly on account of their remarkable development since the Crisis. Past posts have focused on the unique relationship that continues between the bank and the government (on account of its ownership of the bank), its terrible performance (alongside the FCA) in relation to its treatment of SMEs, and also its plans to restructure its business in light of its troubles. Late last week it was announced that the bank had recorded nearly £800 million in profits (£1.2 billion in operating profit), which was pushed in the business media as an extremely positive sign for the bank in its quest to return to private ownership. However, whilst embattled CEO Ross McEwan was quick to talk up the impact of these results, the reality is that the results mask the impending penalties that lurk just over the horizon; RBS is facing penalties for its performance in relation to Payment Protection Insurance mis-selling (a continuing case that may come to a conclusion soon – more later), the actions of the ‘Global Restructuring Unit’, and its performance in the Financial Crisis, particularly with regards to the selling of U.S.-based securities. On that point, in March it was being touted that, perhaps, ‘within weeks’, the case could be concluded by the US DoJ (with some political assistance from the British Government) which has not been the case – the bank is potentially facing upwards of $10 billion in fines which would have a massive effect upon this perceived upward trajectory. Yet, with the British Government essentially lobbying on the bank’s behalf, news today that the bank is closing 162 branches with a potential loss of 800 jobs is testament to the dynamic where the assistance of the British taxpayer is considered secondary to the health of the bank. There is a strong argument to say that this is correct, in that the bank’s health will see it return to private ownership and contribute to a healthier banking sector in the long term. However, in the short-term, workers are being laid off during difficult economic times, which is clearly a negative aspect. It is clearly a difficult dynamic to judge, but the clear availability of a public safety-net obviously does not factor into the industry’s thinking, which as a sentiment raises more questions about the role of these too-big-to-fail institutions within wider society.

Meanwhile, Barclays is experiencing similarly changeable times, although of a different nature to that of RBS. We spoke previously about Barclays’ boss Jes Staley and the investigation into his conduct with regards to the treatment of a whistleblower, and recently Staley received a number of pieces of good news. Staley escaped that FCA investigation with only a modest fine (rather predictably) and then presided over financial results that show the bank’s investment arm is outperforming the performance of its rivals, something which he has been championing in response to the entrance of an activist investor who, to all intents and purposes, would like to reduce the focus upon investment banking. Yet, all is not well in Barclays, with news today that protesters have interrupted the bank’s AGM to protest against the bank’s continuing investment of fossil fuel-related projects. The bank has sought to react to the protests by stating that they are ‘considering our position to deal with these kinds of matters’, although that is unlikely to stem the protests. The bank’s investment within fracking projects close to home will likely result in more pressure, as recent calls for the bank to commit to its pledges to divest from such projects have so far resulted in very little action.

However, one aspect that Barclays avoided was the I.T.-related disaster that has seen TSB brought sharply into the limelight. The bank is currently in its second week of being affected by I.T. issues that had been warned about for over a year, with the height of the crisis culminating in almost 2 million TSB customers being locked out of their online accounts. Despite the bank attempting to stem the bleeding by drafting in I.T. experts, the leaders of TSB are continuing to come under pressure for the performance of the bank, with CEO Paul Pester being summoned by MPs to explain the fiasco. The bank’s compensation bill is rumoured to potentially run into the tens of millions of pounds, and there are questions currently being raised regarding whether Pester will receive his bonuses. Consequently, the bank is facing a real crisis, because the competition within this specific marketplace continues to increase, those facing crises of this magnitude find themselves in real danger moving forward.

Finally, there has been developments recently for Lloyds, specifically as they now own HBoS. The criminal investigation into the conduct of a so-called ‘rogue’ unit that seemingly culminated in the imprisonment of a number of associated people is potentially being re-launched by the National Crime Agency – the NCA is currently deciding whether a new ‘full-blown criminal investigation’ is warranted in relation to fraud undertaken by the bank, specifically for instances that fell outside of the original police investigation. The proposed investigation comes after a number of allegations were brought forward regarding fraud, but it is also interesting to see how the NCA operates in this particular scenario because of the political battles taking place regarding the superiority of the NCA and the Serious Fraud Office – it will be interesting to examine, but this may be the opportunity the NCA needs to establish itself as the eminent department in the fight against fraud.


Keywords – banking, financial regulation, Barclays, Lloyds, TSB, RBS, I.T., Fraud, @finregmatters