Building Societies Abandon The Lending Code

A new version of the Lending Code has been released, simply omitting the name of the Building Societies Association which has ceased sponsoring the farcical idea that UK retail lenders should be allowed to regulate themselves.

Banks and credit card issuers still think it's a good idea though...

Banks Make A Mockery Of Their Self-regulatory #LendingCode

Readers may still be surprised to hear that Britain's retail banks remain self-regulated when it comes to their lending activities.

That means it's the job of their own Lending Standards Board to check that subscribers are complying with the self-regulatory Lending Code, not the Financial Conduct Authority (although there is a 'memorandum of understanding' between the two bodies written on the back of an envelope somewhere).

Of course, the Lending Standards Board tends to give its own members a clean bill of health...

Which is puzzling, because the LSB has just made the rather unfortunate discovery after reviewing complaints procedures that there is "mixed evidence to indicate that issues, once identified, [are] being reviewed specifically against the requirements of the Code."

In other words, the banks are blowing raspberries at the Code.

So, um, how could the LSB have given the banks a clean bill of health before now?

Does the FCA care? Or, in regulatory speak, "Quis custodiet ipsos custodes?"

It's been a farce from the very beginning.

Virtual Currencies Get Real

The Establishment has finally woken up to the reality of virtual currencies, but official responses are all over the place. Let's hope the industry can help forge some international consensus on how to proceed towards a supportive mix of proportionate regulation and self-regulation in the months ahead.

So far, UK officials seem to be the most openly supportive of innovation in this space. The Cabinet Office included virtual currencies in an open workshop in October 2013 (video here) and the Revenue issued a statement clarifying their tax treatment earlier this year.

In the meantime, the industry formed its own body in November 2013 - the Digital Asset Transfer Authority - to participate in the policy making process. Over 30 firms worldwide are represented, and many US Federal and State regulators attened the AGM in April 2014.

That wasn't enough for the Canadians, however. In late June they drew a line in the sand with specific regulatory measures aimed at "dealing in virtual currencies" (undefined), including restricting banking services to registered dealers.

Uncertainty as to what is meant by "virtual currencies" and "dealing" may explain why most other authorities have been careful not to rush. For instance, the Financial Action Taskforce (FATF) released a report at the end of June that was designed to “stimulate a discussion” on appropriate definitions and how best to introduce risk-based controls. That seems to be an initiative that it would be worthwhile for the industry to engage with.

Last Friday, however, the EBA steered a strange path between the Canadians and FATF, requesting the EU's national financial regulators to 'discourage' their financial institutions from buying, holding or selling virtual currencies.  I've reviewed the shortcomings of that approach in an article for Society for Computers and Law. Let's hope wiser heads prevail - it can't be help anyone's cause for the regulated financial sector to completely lose touch with such an important area of innovation.

What the industry makes of all this sudden activity is not yet clear, but I'm sure it's all been much discussed at CoinSummit over the past few days and no doubt we'll hear something from DATA soon. Perhaps from a new Brussels office...