Experienced Investor
UK’s biggest banks face further £19bn in fines
The UK’s largest banks will pay a combined £19bn by the end of next year due to fines arising from scandals, Standard & Poor’s announced today.
In the past five years, £48bn has been paid in fines by 13 banks and building societies in the UK. However, penalties incurred by the UK Big Four – Barclays, HSBC, Lloyds Banking Group and RBS – account for 88 per cent (£42bn) of this total. The ratings agency says sizeable financial penalties have become “a way of life” for the financial services sector, echoing a KPMG spokesperson’s remarks last month that fines for misconduct by banks are “a problem that won’t go away.”
The key driver behind the punitive bills continues to be payment protection insurance (PPI) mis-selling, which has cost UK banks and building societies more than £26bn to date – 55 per cent of the £48bn total. Lloyds has been hit the hardest by mis-selling liabilities, paying out £12bn in fines – more than twice the bill incurred by second-placed Barclays; however, S&P analysts believe “the worst period for PPI provisions has now passed.”
However, analysts went on to note that “some banks will still incur material investment banking-related litigation charges this year, which, depending on timing, may well outstrip retail conduct charges.” This said, it is assumed by S&P that this year “will be the last big year for litigation charges,” with fines for 2013’s forex rigging scandal due to be paid before January next year; Barclays has earmarked a sum of around £1.25bn for when the penalty is finally decided by regulators.
S&P notes that many banks have undertaken structural reforms to avoid incurring further fines. “Examples include a greater measurement of conduct issues within banks’ risk appetite framework, focus on providing evidence that they are doing the right thing for customers, and changed sales practices that are less aggressive or short-termist in nature. Furthermore, chief compliance officers, often hired from regulators, are now typically executive committee members and report directly to the banks’ CEOs.”
“This reflects the introduction of new regulations that benefit consumers, strong media attention, and the proactive role of claims management companies.”
