Capital Markets Corporate

December 20, 2019

Our Weekly Newsletter

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

RPI reforms risk pensions losing billions
Pension scheme members are at risk of losing tens of billions of pounds if the Government decides to reform the retail prices index (RPI) to better align [with?] the consumer prices index (CPI), which also includes owner occupiers’ housing costs. But fund manager Insight Investment predicts that if the RPI were to be realigned, the value of the index linked gilt market would be knocked by up to £90m, hitting many pension funds. The Government will begin a consultation in January to discuss whether the RPI should be overhauled and the affects that overhaul might have on the wider market. (From The Times, 15 December 2019)

Banks hide overdraft limits to keep customers in the black
In a bid to prevent customers from relying on their available overdrafts, banks and building societies have introduced new account rules that show them their actual balance – not the amount they have available to spend. Typically, if a person had £100 in their account with an arranged overdraft of £1,100, this would be displayed as an available balance of £1,100 in an online statement. With the new rules, however, statements will only display a balance of £100. The rules, which have not been widely publicised, were announced in June after an FCA investigation found that banks made £2.4 bn per year from overdraft fees. (From The Times, 16 December 2019)

Homeless offered access to basic banking
HSBC has partnered with charities Shelter and Crisis to provide homeless people with the opportunity to open basic bank accounts without requiring a photo ID of proof of address. Through the partnership, the charities arrange bank accounts for homeless people who apply using the charity’s address for all correspondence. The scheme has launched in 31 branches across the UK to date, including London, Manchester, Liverpool, and Birmingham. (From Your Money, 13 December 2019)

Rudolph antlers may invalidate drivers’ insurance
Drivers have been warned that decorating their cars in preparation for Christmas may invalidate their insurance, potentially costing them thousands of pounds. A study from Zero Deposit Car Leasing has revealed that some accessories – such as Rudolph antlers – can be defined as modifications, which would mean a driver’s insurance would be deemed worthless unless if the antlers are declared. The study also points to decorations that cover rear and side windows (FromThe Sun, 2019)

Small-cap managers tighten up post-Woodford
Small-cap fund managers are reassessing their controls on hard-to-sell assets in the wake of the collapse of Woodford’s investment business. Managers are ensuring controls are in place to ease investor fears that small-cap assets may be next in line to see a run on investment. Small companies typically take a longer time to sell than larger companies due to lower trade activity, which means that small-cap funds are more vulnerable in the event of an investor run. (FromFinancial Times, 16 December 2019)

 

Five big issues for financial services in 2020

As we approach the new decade, there are a number of key issues that will likely dominate the headlines in the coming year. While Brexit will remain a major issue as the UK finally leaves the European Union, there are many more newsworthy issues that financial journalists will be keeping a very close eye on:

 

The rise and rise of ESG

ESG – environmental, social and governance – has gone from the sidelines to the mainstream of financial services and investing in 2019, with the efforts of climate change activist Greta Thunberg helping drive ESG issues into the boardroom and onto the trading floor. As regulation in UK pensions and best practice in asset management try to keep pace with the demand for ESG products and services, 2020 will likely be the year when environmental and social responsibility goes from a sub-sect to something that is imprinted into the fabric of mainstream financial services in the UK.

The next big mis-selling scandal

The Payment Protection Insurance (PPI) claims process has barely come to a close, but the legal firms most active in this space are already looking for their next payday – and there are plenty of issues that could become their next target. From interest-only mortgages sold before the financial crisis, to the continuing Defined Benefit pension scandal that shows no sign of abating. Insurers will also be wary of the continuing issues around dual pricing and loyalty penalties, and fund managers and fund supermarkets alike are taking a close look at their holdings and strategies in the wake of theWoodford collapse.

Property market bounce

The only news to come out of the property and mortgage market this year has been no news as millions of people waited out Brexit uncertainties before committing to a property sale or investment. But in the wake of the General Election, there are already signs that that floodgates are starting to move and estate agents and mortgage brokers now expect to start getting more calls from people who have been sitting on the fence all year.

Hardening insurance market

After a decade of softness, the global commercial insurance market is starting to harden. An inevitable rise in rates will have consequences all the way through the insurance sector and beyond. Some niche areas such as Professional Indemnity for professional services and construction insurance are already feeling the pinch of a tougher market, and in time will likely be felt by consumers in the general insurance market too. Many insurance professionals have never worked in a hard market, so 2020 will likely produce a number of new challenges for a sector that has been soft for a while.

Spotlight on active managers

The precipitous fall of the UK’s best-known stock picker coupled with the continuing poor performance of active management will force the asset management sector to continue to face tough questions in 2020. More investors are likely going to question the fees demanded by the under-performing sector, and both the FCA and Bank of England have made no secret of their desire to focus on asset management regulation, starting with the recent run on open-endedproperty funds.

 

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