My Lords, Ladies and Gentlemen.

Good evening, and welcome to the UK Finance annual dinner. It is a real pleasure to see so many of you here in this great venue. A gathering like this is so special.

We have ministers, peers, members of parliament, officials, regulators, press and, most importantly, our members here tonight. This encapsulates UK Finance at its best. Convening people and enabling a dialogue to take place which brings about real progress on important issues.

It is a pleasure to be able to reflect on some really positive things such as royal assent of the Financial Services and Markets Act. A year ago we were trying to help the government steer it through Parliament. Great credit must go to Andrew Griffith and Baroness Penn for doing that so adroitly, and of course to John Glen and the Treasury team for assembling the Bill over many years.

UK Finance played a significant part in that process and we managed to secure an amendment allowing the Ombudsman service to charge claims management companies, something that is fair and reasonable.

The industry continues to see the benefit of years of prudent lending. Even now, after almost a year of rising interest rates, we have only seen a small uptick in arrears and the customer base, whilst more stretched, is resilient.

This demonstrates what our members do so well. We keep the economy growing and help all of society to have a better quality of life. Without this industry there could be no green transition, there would be much less homeownership, businesses couldn’t thrive and payments wouldn’t be made. The industry has well over a million high quality jobs and we know that our contribution to the tax take and, to the things that tax funds, is enormous.

There is an ongoing debate around risk-taking when it comes to securing a good investment return for retirement. Here there is a desire to encourage people to invest rather than save. Pension scheme and retail participation in stock markets has dwindled.

This is partly because pension trustees have sought to minimise downside risk and partly because personal investment advice is so hard to provide, and to obtain.

It is regulation which has driven this. The irony is, that in seeking to minimise one set of risks, we have crystalised another as the move away from equities has resulted in lower returns and less investment in UK businesses. This has had plenty of attention recently but one area that has had much less focus is the balance of risk in day to day financial services.

I have been concerned for some time about the direction of travel. It is very easy to describe the UK as a major global centre for financial services and assume that will always be the case. Our reputation has been built over many years because of the ability to operate in a free, well regulated, market. Allowing participants to make good returns whilst society benefits. This encourages overseas investment.

But, if that is the case, then why do our large banks trade below book value?

I think it is, in part, down to what one might describe as the risk paradox. As a society, over many years, we have consistently moved to allow individuals and businesses to take risk and then sought to shield them from negative consequences. This is something Ashley Alder referred to in a recent speech to the Investment Association where he talked about “tough issues about societal tolerance of risk”.

This process often manifests itself with a familiar pattern. Something happens that causes questions in the press, MPs’ mailboxes, or perhaps at the TSC. The regulators and / or the government get criticised for not doing enough. This often results in action, maybe new rules, new laws, new charges on banks, or sometimes just arm twisting of banks.

The particular issue may, or may not, be rooted in reality but it is perceived as being important at that moment. Issues are normally either explained or resolved but in many cases the resolution results in an uneasy outcome. One that sees the public have their risk-taking further underwritten or eradicated.

And yet, the cost of that mitigation doesn’t come from a miracle pot of cash. It comes from shareholders, mutual members or other customers.

This risk transfer affects the investability of our members as well as price and value for customers. Ultimately, it also impacts the UK’s competitiveness and makes people pause for thought before allocating capital here if they have choice about where to invest.

Every player in this process has a justifiable reason for their action. However, the overall result is that we are witnessing a real shift in society and a series of outcomes I believe we should all worry about.

Let me use some examples from this year to illustrate the point. Authorised push payment fraud or online theft, as Bob so aptly describes it, is the scourge of Britain. It represents a huge proportion of crime, and costs hundreds of millions in losses, with a huge additional cost in terms of detection and prevention. Most of that cost falls on our industry.

We have been working hard to change the payments system to help prevent fraud. We have made progress in both the Online Safety Bill and the Economic Crime and Corporate Transparency bill.

But this year the PSR has consulted on increasing the reimbursement rate to nigh on one hundred per cent of cases with a minimal first loss for the customer. The industry already had a voluntary code which in 2022 resulted in 66 per cent of cases being reimbursed in full by those firms that signed up. The scheme works, and it could have become compulsory for all payment providers as well as sharing the burden between sending and receiving firms. But the PSR chose to go even further.

No one wants to see vulnerable customers suffer financial loss and the angst of being scammed. The problem is that reimbursing every case, no matter what warnings were made, both removes moral hazard and any need for customers to act responsibly. The overlay of FOS decisions sometimes compounds the issue.

We are also seeing the definition of scams expand to include trade disputes and complicit fraud. I saw a case recently where a family bought a puppy they were subsequently unhappy with, and obtained full reimbursement plus 8 per cent interest following a FOS ruling. And they kept the puppy. In my view that is a trade dispute rather than a scam.

The UK already has the largest push payment problem in the world. The new PSR approach will surely make it worse. It removes the need for customers to think or take care. It transfers the risk to other customers and to shareholders. It is a blank cheque and an open invitation to scammers to further target the UK. It will increase the threat to national security posed by these scams as they often emanate from state actors.

In the Spring we were faced with the troubles surrounding Silicon Valley bank. UK Finance was right at the heart of the work with HM Treasury on a backup plan should a sale not materialise. Happily, the sale of the UK subsidiary did take place and we saw a smooth transition.

In the USA, whilst the issues were more deep seated, all depositors were made whole. Over that weekend there was intense pressure put on government by venture capital firms here, to do the same should the UK arm of SVB fail. We have a deposit protection scheme which limits protection to £85,000. That covers a large majority of the population, but it does not cover everyone.

The action in the US raises the question of whether that limit is enough and indeed it is actually ever going to bite? Has the US set a precedent it will be hard to row back from, and what should we do in response?

The question on my mind is, should it be OK for firms or individuals to pay no attention to their risks in placing large deposits? Particularly those larger, more sophisticated firms who arguably should have some sort of treasury strategy.

This is another example of risk transfer and absence of moral hazard and its consequence could be significant in the future.

July saw the introduction of the new Consumer Duty. It is too early to form a view as to its impact in practice, however, last winter I attended a meeting with consumer groups.

The opinion of some around the table was that in a period of falling mortgage rates, which we were seeing briefly at that time, the lenders should move those who had fixed at a higher rate to the new lower rate. It was, they said, in line with Consumer Duty. I had not expected this but I think this sums up the zeitgeist quite well.

Protecting vulnerable consumers is entirely appropriate but allowing anyone to make any decision and bear little or no consequence is creating a situation where the cost is weighing down on our industry and its competitiveness. And ultimately that will be to the detriment of society.

The proportion of mandatory and regulatory change in firms’ investment pots has risen to the point where investment in innovation is being stifled. This is no more true than in payments, where about 90 per cent of the change is driven by regulation.

We need to debate where the right balance is. We need to make the UK a place where investors with choice seek to allocate their funds.

Despite my worries, the industry is moving forward on a wide range of subjects and UK Finance is at the heart of the action. I can’t cover everything, but I just wanted to highlight some of the pieces of work we have undertaken.

At the start of the summer we faced into the consequences of rising interest rates. The first subject was mortgages. The MPC has increased interest rates in order to dampen down inflation. This led to some customer hardship. Lenders were acutely aware of this and already had existing mechanisms to help those who would struggle to cope.

The option to move to interest-only, or extend the term of the mortgage was already available to customers. The process that leads to a home being repossessed was already long and sensitively handled. The Mortgage Charter simply drew these areas together.

The Reach Out campaign that emanated from the Charter has been a huge success, with great awareness, and we got that up and running with strong member support in just three weeks.

The Economic Crime team played a pivotal role in developing the second Economic Crime plan with government, and we have worked tirelessly to get a more balanced approach to push payment fraud.

The Dedicated Card and Payment Crime Unit arrested 104 suspects, secured 47 convictions, and saved the industry £29 million. 

We are also running a brilliant campaign called Don’t Be Fooled which sets out to protect children from become money mules. It has had huge cut through with children and could make a real difference to their lives.

We have had success in driving a major international collaboration on the oil price cap.

We worked with the FCA on the cash savings market review to introduce a series of service improvements such as ISA transfer times and speed of rate passthrough that is aligned with the Consumer Duty. Instant access rates are higher in the UK than almost every European nation.

We worked closely with the government on ring fencing and with the PRA on Basel 3.1 where we hope to see some movement from the original consultation whilst keeping the UK materially compliant.

At the start of the summer we saw the Moveable Transactions Act pass in Scottish Parliament. This is a once-in-a-generation package of reforms, that UK Finance has spent over a decade advocating for. It creates a new type of fixed security in the form of the Statutory Pledge which can be taken over a range of assets including, importantly, over whisky!

The chancellor announced a review to compare the UK with payments markets globally. We proactively engaged with the chair, Joe Garner, and I'm confident that our collective efforts will enable us to drive the payments agenda forward.

We also worked with you to produce a strong, evidence-based response to the TSC enquiry into SME finance. As a result, the ability, and willingness, of the industry to support UK SMEs access finance is well understood by the committee.

This is only a small snapshot of the work we have undertaken for our members. We exist for you, and are focused entirely on what matters to you, whichever part of the industry you work in. To do that we need to be trusted and able to collaborate with regulators, the media and government.

So, this year we thought it would be good to ask them how we were doing. I was absolutely delighted with the result. We benchmarked ourselves against other trade bodies and came out top by some distance, with high levels of trust and belief that we were expert.

That is what allows us to support you, and the industry as a whole.

I am now in my 46^th year in financial services and have been proud to be a part of the sector through all those years. I have set out some challenges regarding the direction of travel, but despite that I believe we are in good health and in a strong position. We do a huge amount of good for society and I am optimistic about the future.

Please join me in raising a glass to toast the banking and finance industry.