Bank of England says Brexit transition desirable for UK, EU banks

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The Bank of England said a transition period after the Britain leaves the European Union would give banks more time to make orderly changes as Brexit poses risks to financial stability.

With UK due to leave the bloc in March 2019, the BoE’s Prudential Regulation Authority (PRA) said it faces heavy demands from Brexit fallout on banks and insurers.

BoE Deputy Governor and PRA Chief Executive Sam Woods said “some form of implementation period is desirable” between Britain leaving the bloc and start of new trading terms to “give UK and EU firms” more time to make necessary changes.

But he stopped short of saying what sort of transition he wanted in a reply to Nicky Morgan, new chair of parliament’s Treasury Select Committee, who asked him this month for his views on the design of such a period.

The UK government has not presented the EU with any firm request for a transition period as it still seeks internal consensus.

UK-based firms are not waiting for clarity and are announcing new hubs in the EU27 to be sure of serving customers there after March 2019 – and avoid the destabilising ruptures in financial links the BoE fears.

Woods had asked banks to spell out how they would cope in particular with a “hard” Brexit where Britain crashes out of the EU with no transition or trading deal.

In a letter to Morgan made public on Wednesday, he said 401 responses were received, which revealed “significant issues for many firms” and the BoE will reach a view on the plans in the autumn.

The submissions provided “further evidence” of risks the BoE had already identified, specifically relating to the continued servicing and performance of existing contracts and restriction on data transfers.

There could be a sharp rise in the number of insurance policies shifted from one country to another, a switch that involves the courts, he said.

“Re-structuring by firms to mitigate risks to their business will in general increase complexity.” Dislocation and fragmentation of markets could bump up costs and cut activity.

The BoE will need to ensure that supervising firms with links between the EU and a Britain outside the bloc, is still doable, he added.

The PRA faces having to authorise and supervise a significant number of additional firms, which could place a material extra burden on resources, Woods said.

London is home to branches of banks from continental Europe and they face having to become subsidiaries, meaning they would be directly supervised by the PRA.

Woods said the issues set out in his response to Morgan “pose a material risk” to the PRA’s objectives as a supervisor, and that this work is a top priority.

“It is incumbent on us to manage this burden but we may have to make some difficult prioritisation decisions in order to accommodate it,” Woods said.


Hull telecoms firm KCOM fined over 999 call failures

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Communications provider KCOM has been fined £900,000 after flooding caused by Storm Eva led to the failure of 74 emergency calls.

Ofcom found “serious weaknesses” in the Hull-based firm’s emergency call service which meant people in the area could not make calls to 999 or 112.

The regulator found it had broken rules to ensure people can contact emergency services at all times.

KCOM operates the main telephone and broadband network in Hull.

It is the only UK city not served by BT’s Openreach, which controls the telecoms network.

Ofcom said KCOM notified the regulator on 28 December 2015 that its emergency call service for the Hull area had failed for around four hours.

It said the failure was because of flooding at one of the BT’s telephone exchanges in York in the wake of Storm Eva.

However, Ofcom found that all emergency calls from customers in that area relied on the flooded telephone exchange in York.

Under Ofcom rules, the telephone and broadband operator should have been able to automatically divert emergency calls via back-up routes.

The investigation found that although the firm did have back-up routes in place, these also relied on the flooded telephone exchange in York.

Ofcom said KCOM created an alternative route to carry emergency calls that bypassed the flooded telephone exchange in York within two hours of identifying the problem.

The regulator said it expected telephone companies’ services to be resilient enough “to the greatest extent possible” to connect emergency calls at all times, even in challenging circumstances.


Firms face £17m fine if they fail to protect against hackers

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Firms could face fines of up to £17m or 4% of global turnover if they fail to protect themselves from cyber-attacks, the government has warned.

The crackdown is aimed at making sure essential services such as water, energy, transport and health firms are safeguarded against hacking attempts.

Firms will also be required to show they have a strategy to cover power failures and environmental disasters.

Digital Minister Matt Hancock said any fines would be a last resort.

They would not apply to firms which had put safeguards in place but still suffered an attack, the Department for Digital, Culture, Media and Sport (DCMS) said.

‘Safest place in the world’

Mr Hancock, who is launching a consultation on the plans, said: “We want the UK to be the safest place in the world to live and be online, with our essential services and infrastructure prepared for the increasing risk of cyber-attack.”

The DCMS said firms that take cyber-security seriously should already have measures in place to prevent attacks or systems failures.

It said the consultation was aimed at determining how to implement the Network and Information Systems (NIS) directive which becomes law across the EU next May.

It is separate from the General Data Protection Regulations (GDPR), which are aimed at protecting data, rather than services.

The GDPR will replace the UK’s Data Protection Act 1998 from 25 May next year and the government has confirmed that the UK’s decision to leave the EU will not change this.

Earlier this year, NHS services across England and Scotland were hit by a large-scale cyber-attack that disrupted hospital and GP appointments.

And the threat to firms from cyber-attacks appears to have grown.

Nearly half (46%) of British businesses discovered at least one cyber-security breach or attack in the past year, a government survey earlier this year found.

That proportion rose to two-thirds among medium and large companies.

Most often, these breaches involved fraudulent emails being sent to staff or security issues relating to viruses, spyware or malware.


Energy price cap on pre-payment meters tightened by Ofgem

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About three million households are set to benefit from a tightening of the price cap on pre-payment energy meters, according to regulator Ofgem.

The regulator says the move will cut the average bill for pre-payment customers by up to £19 a year.

The change, which takes effect on 1 October, is set to cut the average annual bill for dual fuel pre-payment customers to £1,048 from £1,067.

On Sunday, a review was launched looking at ways to reduce energy costs.

The independent review, launched by the government, will examine how the UK can keep household bills down while also meeting its climate change targets.

Higher cost

A temporary price cap on pre-payment meters was introduced in April this year. It is updated by Ofgem every six months to reflect the estimated cost of supplying energy.

Ofgem said the change to the cap would reduce bills for electricity customers by about £19 a year on average, while the cap on pre-payment gas prices would remain broadly unchanged.

Many pre-payment meter customers pay through token- or coin-operated machines. Some of these customers may have had difficulties paying in the past. Others include some tenants whose landlords have the meters installed in properties.

Ofgem has found previously that competition among suppliers for pre-payment customers is less developed than for those who pay by direct debit, cash or cheque. This means that there are fewer tariffs available and they are generally more expensive.

Figures published in August last year showed that pre-payment customers paid an average of £220 a year more than those on the cheapest deals.


Car insurance market dysfunctional, says Aviva

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The car insurance market is “dysfunctional” and does not reward loyal customers, said the chief executive of Aviva, Mark Wilson.

He said firms were tempting in new customers with prices that were “too low”, which put prices up for existing customers.

Car insurance premiums have gone up by 11% in the last year, according to the Association of British Insurers (ABI).

The typical bill for an annual policy is now £484, it said.

“I think that the UK car insurance market is dysfunctional, I don’t think it works properly,” Mr Wilson told the BBC’s Today Programme.

“The entry level is too low and then it gets put up for all existing customers,” he said.

Aviva has developed a “suite” of products to be launched before the end of the year, which will help reward loyal customers.

“Let’s see how it goes,” Mr Wilson said.

Car insurance is just 2% of Aviva’s total business.

Pay

Shares in Aviva rose by about 0.5%, after the company reported operating profits up by 8% in the first half of 2017.

Sales of annuities, bulk annuities and equity release products all rose, with growth particularly strong in the UK.

The dividend was up by 13%.

However, Mr Wilson refused to say whether he thought he was paid too much.

“I think I’ll let the shareholders answer that one,” he told the BBC.

He said the company was happy to publish the ratio of its highest paid employee to its lowest, as soon as the government had determined how such a ratio should be expressed.

Aviva already pays its employees the National Living Wage and requires all its contractors to do likewise.


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