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Categorized | Banks, Financial

Consumer banking faces Brexit hit

Posted on September 26, 2016

Signs sit outside branches of a Lloyds TSB bank, part of the Lloyds Banking Group Plc, a Barclays Plc bank, a NatWest bank, part of the Royal Bank of Scotland Group Plc (RBS), and a HSBC Holdings Plc bank in Staines, U.K., on Tuesday, Dec. 18, 2012. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

The consumer-facing side of British banking will be hit by Brexit, with services like credit cards, private banking and digital payments all facing disruption, according to a confidential industry report.

While attention has so far focused on the potential damage Brexit could inflict on the investment banking industry, the less exotic areas of lending, savings and payments will also be affected.

    According to a 117-page British Bankers’ Association report that maps out the challenges Brexit poses to the sector, the UK credit-card industry — dominated by Barclaycard — issues 73 per cent of all cards across the EU. It could see its market share eroded, while customers may face stiff fees from retailers or cash machines across the bloc.

    Retaining access to the single market will be challenging for the City of London, given that immigration controls were a key campaign promise by Brexiters but a red line for the rest of the EU.

    Given that public sympathy for bankers is in short supply, the industry hopes that politicians can be swayed by the effects on the financial services needed by the man on the street as much as the damage to investment banking.

    The City is steeling itself against a “hard Brexit” — whereby companies would lose their “passport” that allows them to sell their services across the EU without the need for individual regulatory approval in all the different member states. Thousands of UK companies rely on this to operate in the EU, and vice versa.

    The BBA report — composed by the law firm Clifford Chance and Global Counsel, the advisory firm set up by the Labour grandee Lord Mandelson — has been jealously guarded and not made public. It says that UK-based banks provided more than £1.1tn of loans to the EU and exported £20bn of financial services to the bloc

    It warns that the ability of UK customers to make payments to the EU could be “significantly harmed” by the country falling out of payment arrangements such as the Single Euro Payments Area.

    Brussels’s rules around payment services do not allow for “equivalence”, which are rules on how overseas companies can gain access to specific parts of the EU financial-services market.

    The BBA report calls on the UK government to negotiate new market access arrangements in a bilateral agreement with the EU.

    The report explains that once it left the EU, the UK would no longer be part of the bloc’s Interchange Fees Regulation (IFR), which limits the charges for merchants accepting credit or debit cards and prevents retailers from discriminating against regulated cards.

    “UK card service providers may find it difficult to maintain their existing position in the UK,” it warns, adding: “UK-issued cards may be less accepted in the EU27 since they will incur higher costs for retailers.”

    But it says that this could be addressed if the UK makes a public commitment to maintain similar rules for card charges to those in the IFR.

    Private banking “will be particularly badly affected”, the report warns. Wealthy clients that use private banking services are classed as retail customers and there is no equivalence regime for retail customers, meaning the UK private banks could be cut off from EU clients. Private bankers typically travel to wealthy customers based overseas to offer their services.

    The UK private banking industry — led by Coutts, UBS and Barclays Wealth — is widely ranked second behind Switzerland by size of assets under management and administration, growing rapidly in recent years to $1.7tn in 2014, according to Deloitte.

    “There will be some countries in which it will be in practice impossible for UK private banks to offer their services,” the report reads.