**CHECK AGAINST DELIVERY**

Minister of State, my Lords, Ladies and Gentlemen, good evening. Thank you for coming to the UK Finance Annual Dinner. A big thank you to EY for sponsoring this evening.

2022 has been a year of turmoil and tribulation. We have seen the passing of Queen Elizabeth II and multiple changes in government. Russia has invaded Ukraine and we appear to have slipped into recession.

This time last year, I spoke of the potential for a difficult winter off the back of rising prices and supply chain disruption. Well, last winter was tough but I wager this one will be tougher still.

The banking and finance industry has a vital role to play in helping customers navigate these difficult times. So far, the portfolios of lenders have stood up to the economic stresses that we have seen. Arrears and impairments are around normal levels but, it is clear there is mounting strain as interest rates continue to rise.

Our members – many of you in this room – have already been proactively contacting customers before they miss payments to see how you can help.  This reassurance must come as a huge relief to those who just don’t know what they should do.

The work we have undertaken on forbearance and helping customers through difficult situations will prove vital as the next 12 months unfold. The industry has worked with regulators over many years to develop a set of protocols which lead the way in this space.

And we aren’t standing still. Our mortgages board has confirmed that as usual, there will be a repossession moratorium over the holiday period, giving further support for some of the most vulnerable customers. We now need local authorities and utility companies to adopt similar forbearance practices.

In this situation, there are a limited number of lending tools such as moving to interest-only or a term extension, which can help customers with cashflow stress. This challenge is different to the pandemic as it is likely to be more enduring, and it is also different to 2007 because mortgage customers have more of an affordability buffer on which to draw before difficulties are encountered.

The landscape is different, and the industry has changed during that 15-year period too. For the better.

In the SME market, the approach is different to that we adopted during Covid-19 as the cashflow pressures are much more diverse and solutions will be found on a case-by-case basis. There is an identifiable increase in demand for asset-based finance as cash pressures increase on some businesses. Overall, however, the SME sector starts this winter in pretty good shape.

Helping vulnerable customers is a key role for members and last year I talked about the work we had undertaken on developing a solution to maintaining access to cash. A year on, we are on the verge of new legislation passing through the parliamentary process and into law. It is quite remarkable that a project identified and set up by UK Finance has gone from an idea to the cusp of legislation in 18 months.

It just shows what we can do when we work collaboratively as an industry with regulators, consumer groups and government. As Nikhil has said, protecting cash access is vital. The empowerment of LINK with a wider remit to identify solutions, and a new operating company to deliver them, will see plans take shape on the ground.

The solution that is developed will allow a natural reshaping of cash infrastructure and ensure adequate cash provision is maintained. A mixture of cashback without purchase, ATMs, post office counters and bank hubs will ensure good cash access across the country. We already have 29 hubs in train with more to follow. We should be really proud of this work, I know I am.

Last year I also raised the issue of vulnerability when it comes to the transition of our housing stock to Net Zero. People on low incomes will struggle to upgrade their homes, especially with current financial pressures.

Last year I asked you to come with me to Sheffield and to imagine in your mind’s eye a really tight cul de sac of 1930s terraced ex-council properties. Two up, two downs, hardly any parking. Definitely not up to the requisite EPC standard.

One such property had just been purchased for £44,000 and it seemed to me that the transition might leave this individual and thousands of her neighbours struggling with higher fuel costs and unable to finance the necessary improvements. This could create a problem similar to, but on a much larger scale than, cladding.

I could see the problem but wondered what we could do as an industry and who we could work with.

So, we set about trying to lead the thinking on this, and the wider issues relating to the housing stock in general. This month, we launched our UK Finance report Net Zero Homes: Time for a reset which we produced with input from KPMG.

The report was incredibly well received as it sets out clear recommendations including tackling standards, retrofitting capacity, funding, stamp duty changes and grants.

Government has an opportunity to help the retrofitting industry become better established by tackling skills shortages, and the banking and finance industry has an opportunity to help retrofitters deal with cash flow and supply chain issues. Our capital markets members are already investing heavily in big infrastructure projects to support the transition.

The reason this is important is that if we don’t tackle this issue quickly, we as an industry risk exacerbating financial exclusion and creating reputational damage as we green balance sheets in the pursuit of well-meaning public policy. This report is a great first step and we will be following up with the government and the construction and energy sectors to take this agenda forward over the next few years.

I am looking forward to making a return visit to that street in Sheffield in a few years’ time, seeing properties in better shape and knowing that this industry played a major part in leading and enabling the change.

On the subject of vulnerability and financial exclusion, I have to raise a real worry I have about the Consumer Duty. The Consumer Duty has at its heart a desire to give customers protection and improve their experience. The implementation timetable is extremely tight, maybe too tight.

If we get through on time, the real problem I foresee is the likelihood of unintended consequences. Faced with a lack of clarity over the definition of “good outcomes” and the real risk of challenge down the line I worry that firms will take a low-risk approach, withdrawing products and / or tightening the sales criteria. Effectively excluding those who might need the greatest financial support over time.

As an example, how do you judge whether a fixed or variable rate mortgage taken out today would result in a good outcome for the customer?  You need a crystal ball. Moreover, if that mortgage gets converted to interest-only for a period and increases the cost because of a desire to help in the current financial crisis, is that a good outcome? Who decides? The customer? the Financial Conduct Authority (FCA)? or possibly the claims management companies, or the Financial Ombudsman Service (FOS)? 

Those views on what is good may not form for many years and of course, will be shaped by the benefit of 20/20 hindsight. So, faced with those challenges I imagine lenders will think carefully and try to avoid problems down the line. This, in my view, might result in exclusion. We are not going to passively let this happen. We will work with Nikhil and his colleagues at the FCA as well as the FOS in order to try to address these issues so the Duty achieves its purpose effectively.

Another area I touched upon last year was the scourge of Authorised Push Payment fraud. Fraud is such a passive word, redolent of victimless crimes involving accounting changes. Nothing could be further from the truth. Let us be clear, this is organised crime with cash being stolen to fund drugs, terrorism, people trafficking and other dreadful crimes.

We have to try and stem it. We set up a project earlier this year and we have a great chair in John Collins. The idea was to address the issues we can control. To tackle weaknesses in our payment systems and also to look more widely at those who bring risk into our systems.

An example of the work being undertaken is a proof of concept conducted between January to June this year involving seven banks’ data. We used extra data points including things as simple as age of account holder, age of account, account type and payment reason.

Sending firms reported an average of 20 per cent increased fraud prevention. With receiving firms, the picture was more mixed but three firms reported significant mule detection. Overall, this six-month proof of concept showed that sharing these few data points alone could stop an annualised £20 million of scams just between these seven firms. If we scaled this up to cover all Payment Service Providers the prevention figure could rise to £100 million.

I see this as just the start. The Economic Crime and Corporate Transparency Bill will help us with information sharing and the seizure of crypto assets linked to fraud. We also need to be able to delay a small number of high value payments where fraud is suspected so law enforcement can speak to victims who are often heavily manipulated by the fraudsters.

The PSR has a consultation running on APP fraud and many of the areas they highlight I agree with. But I worry greatly about the reimbursement model. Especially the adverse impact it may have on smaller firms in the sector.

The mandatory nature of the proposals, with the tiny first loss of £35 payable by the customer, concerns me greatly. Where is the moral hazard for the customer? How do we prevent complicit fraud? And, if and when the rule is introduced, what happens to those who were not reimbursed in the past – does it mean they now will be? We intend to offer an alternative approach with more balance and will work with the industry to do so constructively.

It would be very easy just to focus on the payment system and the reimbursement model, but we were successful in getting technology companies’ responsibility for fraud origination built into the Online Safety Bill.  In particular, UK Finance and our partners have been successful in campaigning for paid-for scams advertisements to be included in the scope of the Bill.

It is through the strong working relationships we have with regulators and government that we are able to help ensure the industry can remain competitive. The best example I can think of is the wholesale and capital markets section in the Financial Services and Markets bill. This followed a lot of detailed discussions between our team, HM Treasury and the FCA. This shows what we can achieve working together.

The three bills I have touched on are vital to the industry and we commend the government for putting them forward. The industry is in great shape, it coped with Covid-19 well and was able to support the rebuild. I am confident it will weather the current turbulence too and enable us to emerge from recession and help deliver the growth we all crave. The innovation, expertise and hard work of this industry is vital to the future of the UK and I am very proud to lead your trade association, one that has led on so many of these key issues.

Please join me and raise a glass to financial services.