Northern Rock debate needs to revive mutuality

26 May 2011

The debate about mutuality is back up and running and not before time.

As the need to set a course for returning Northern Rock to the private sector forces its way up the Chancellor's agenda, more people are looking at the mutual option. In last year's General Election, Labour made it clear that it was serious about this as an option and its new shadow business minister Chuka Umunna has has ensured that this option is seriously looked at by tabling an Early Day Motion in the House of Commons that has now gathered support from over 100 MPs, including many Liberal Democrats and a handful of Conservatives, among them Jonathan Evans, chairman of the All Party Parliamentary Group on Insurance & Financial Services.

The mutual option also got an airing this week on the back of the excellent results from Nationwide, demonstrating to many that mutual ownership does have a role in the modern financial services sector. Nationwide has been quick to rule out taking over Northern Rock because it has a huge overlap in branch locations. The suggestion has, however, ensured that the debate is now very live in advance of a Deutsche Bank report on Northern Rock's future due to be delivered to UKFI - the taxpayer owned vehicle for managing the nationalised bank assets - before the summer recess.

I have long been a fan of mutuality in the financial services sector and regretted the tidal wave of demutalisations in the 1990s, including Northern Rock, as it severely reduced what I always thought was a valuable diversity of ownership that meant longer term interests of customers had a greater chance of being taken into consideration. Mr Umunna summed this up well in The Guardian today; "A remutualised Northern Rock would inject a valuable dose of participatory democracy into an industry that too often puts the short-term interests of shareholders above all else".

It will be over to Deutsche Bank for the next instalment in this debate but at least we are having a debate.

Topics: UKFI, Northern Rock, Labour, Jonathan Evans, General Election 2010

Labour rediscovers an appetite for mutuality, co-operatives and a People's Bank

12 Apr 2010

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Mutuality is back on the political agenda - at least that is what my initial reading of Labour's election manifesto suggests could happen if they win the election. Of course, whether it is noticed depends on how the other parties respond to this theme. Most likely it will be submerged by the battles over issues that are more likely to obsess the mainstream media like tax cuts, health, education, crime and immigration.

There has already been some media comment over the suggestion - and it is only that - that Northern Rock could be returned to its former mutual status when the government divests itself of the failed bank:

"As one option for the disposal of Northern Rock, we will encourage a mutual solution, while ensuring that the sale generates the maximum value for money for the taxpayer", says the party's manifesto.

As I have written before, Labour has a natural affinity with mutuality through its long association with the co-operative movement so these proposals sit very comfortably with them. In the same section as its comments on the possible future ownership of Northern Rock, it also praises building societies although only rather limply promises to "consult on measures to help strengthen the sector".

Elsewhere, this enthusiasm for mutuality is also reflected in pledges to make it easier to create more employee-owned and trust-owned businesses and a commitment to turn British Waterways into a mutually owned co-operative. In a similar vein, there is also a bold, some would say long overdue, proposal "to transform the Post Office into a People's Bank offering a full range of competitive, affordable products. This will help sustain the network and boost competition in banking". The reference to sustaining the network will raise a few angry eyebrows in rural areas where people will wonder why this wasn't on the government's agenda before the widespread closures of rural post offices took effect in recent years.

Elsewhere in the manifesto, there is very little new on financial regulation. Labour set out its stall in this area some time ago with its re-affirmation of the tripartite system and the proposal to set up a Council for Financial Stability, all of which is in the manifesto. Labour is also sticking to its guns over the need for international co-operation in creating new rules for tougher capital requirements and the introduction of levies on banks. It does make a distinction between the volume of capital banks might be required to hold, which it says it will unilaterally increase, and the quality of capital they should hold which it says is a matter for international agreement. It sounds like a recipe for confusion and indecision to me.

One area of possible regulatory confusion the manifesto does clear up, however, is over consumer credit. This, Labour pledges, will be handed to the Financial Services Authority, ending the anomaly of unsecured lending sitting with the Office of Fair Trading under the Consumer Credit Act 1974.

Of course, the election will rightly be fought on bigger issues than these but it is always useful to look beyond the headlines and into the depths of the manifestoes to see what the election outcome might mean for the markets we operate in. After all, it is these detailed policy areas that tend to form the bulk the legislative programme of an incoming government.

Topics: UK Election 2010, Northern Rock, Labour, Financial Services Authority

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Sants' departure from the FSA clears the way for reform of regulation

09 Feb 2010

The surprise announcement this morning by the chief executive of the Financial Services Authority, Hector Sants, that he will leave by the summer presents a golden opportunity to re-model the way financial services regulation is delivered in this country. With a relatively new chairman in Lord Turner and now a new chief executive in the offing there will be little temptation on anyone's part to defend the regulatory status quo regardless of who wins the forthcoming General Election.

Few people will mourn Sants' departure.

For many he will be tainted with being asleep on watch as banks collapsed around him, starting with the unedifying sight of people having to queue in the streets for hours to take out their money from Northern Rock and continuing with the failure to spot that risk management was failing catastrophically in parts of the markets he was meant to regulate. While missing the real problems, the FSA was busy annoying independent financial advisers and brokers with its Retail Distribution Review and a raft of potentially burdensome regulations. Those are both probably slightly harsh judgements but that is how many will see his three years in charge.

What is probably more interesting is the future. Some of the coverage of his resignation has been very misleading, suggesting that the Conservatives want to abolish the FSA and merge most of what it does into a revamped Bank or England regulatory department. This is only half of the story. The other part of it is the creation of a Consumer Protection Agency that will regulate most of the retail financial services sector, including IFAs and insurance brokers. Where and how the boundary between the Bank and the CPA will be drawn is not very clear and this is the major fault line running through the Tory plans.

Should they win the election, my guess is that the Tories will like the look and sound of Lord Turner with his stinging criticisms of socially useless financial products and give him a key role in reshaping regulation. They will then be looking for someone to head up the CPA with - remember - a brief to protect consumers, not look after practitioners. That person wouldn't have been Hector Sants, so he has been wise to depart on his terms now.

If the Tories fail to win then we will probably find ourselves in the area of a hung Parliament with the Liberal Democrats calling some of the shots. They have criticised the Conservative proposals and favour beefing up the current regime, aligning it more closely with what is coming out of the European Union (albeit that much of that is up for grabs too). Labour wants to strengthen the existing tripartite arrangement (FSA, Bank and Treasury) and ensure better co-ordination between the three. Both these approaches again probably leave Lord Turner in position but with a more consumer-facing chief executive of the FSA (which will make it feel like a CPA but without the name change and all the uncertainty). What will that person look like is the million dollar question.

With bankers currently not enjoying the highest approval ratings from Joe Public it seems unlikely that anyone who has spent a large part of their career in the banking sector is going to be considered but it is hard to see how that job can be done by someone who does not have a solid background in the financial services sector. It makes one wonder whether the ideal candidate might be someone with an insurance, pensions or retail funds background.