The Financial Services Authority (FSA) has raised the limit to the amount of deposits that are guaranteed should a bank go bust to £50,000.

The new limit will come into effect on Tuesday 7 October. Previously, the first £35,000 of savers’ deposits had been protected.

The FSA will now consult on whether the limit should be raised even higher.

Chancellor Alistair Darling said the increase meant 98% of account holders would have all their savings protected.

The new UK limit is for each customer so joint accounts will be guaranteed up to £100,000.

Mr Darling said the increase would “go a long way to assuring people that their deposits are safe”.

Earlier this week, Ireland introduced an unlimited guarantee covering bank deposits.

Banks in the UK have been concerned that savers would move their money to Ireland to take advantage of the 100% protection.

Banks covered

Payments will be made through the Financial Services Compensation Scheme (FSCS) and the FSA has said that it is to look into reforms that will allow compensation to be paid faster.

“It is appropriate given the consolidation that has taken place in the banking sector” Hector Sants, chief executive, FSA

The FSCS covers all UK banks, building societies and credit unions.

Banks from outside Europe also contribute to the scheme and so their depositors are also protected.

European banks may be covered by their own schemes and customers may be covered for only 20,000 euros (£15,600).

The FSA is also to consider whether accounts with different banks that are owned by the same parent company should be covered.

At the moment, customers are only covered for one account under each banking licence so if you have two accounts with banks that are owned by the same parent company you will only have a total of £50,000 guaranteed.

“This change ties in with the introduction of the government’s Banking Bill in Parliament, which is due next week,” said FSA chief executive Hector Sants.

“It is also appropriate given the consolidation that has taken place in the banking sector.”

News reported by The BBC

Troubled bank Bradford & Bingley, which has seen its share price crash, is to be nationalised, the BBC has learned.

Officials from the Treasury and the Financial Services Authority (FSA) have been in talks with executives from the bank in a bid to secure its future.

BBC News business editor Robert Peston says the Treasury will then speedily sell B&B’s 200 branches and its savings business to a bank or number of banks.

But the British Bankers Association is unhappy at some aspects of the plan.

‘Difficult choices’

Association chief executive Angela Knight told BBC Five Live she was not happy the taxpayer was having to take on the liability of B&B as well as Northern Rock.

She said: “I’m not comfortable with that, I don’t know anybody who is comfortable with that. There’s a series of difficult choices here.

“The financial services industry underpins, not just the UK economy, but indeed all of us individually, and there can be times where authorities have to step in.”

She added that it was a “very great shame that it’s got to this place”.

But our business editor said that B&B was getting “perilously close to a funding crisis… there had to be a solution”.

Loans nationalised

B&B’s share price has plummeted and it has announced plans to cut 370 jobs due to a downturn in the mortgage market.

“Why don’t they have the sense to nationalise the things that matter – Water, Electricity, Gas, Railways etc, etc” Colin, Plymouth, UK

The bank will be nationalised using special legislation the Treasury put through when it took Northern Rock into public ownership earlier this year.

The measure is expected be announced on Sunday night or Monday morning.

The Treasury and FSA will negotiate with banks interested in buying parts of B&B. Possible buyers included Santander of Spain, HSBC and Barclays.

Santander, which already owns Abbey and Alliance & Leicester, has been looking at B&B for some time.

“The nationalisation and break up of Bradford & Bingley will represent a momentous event in the history of British banking” Robert Peston

B&B’s £50bn of loans, including £41bn of home mortgages, will not be sold and will be nationalised on a long-term basis. The mortgages may be given to the nationalised Northern Rock to manage.

The bank experienced significant withdrawals of cash from its branches and online bank on Saturday amid customer concerns about its situation.

‘Less vulnerable’

The Treasury’s decision to sell B&B’s savings business means depositors and savers’ money should be safe.

“In terms of UK banking problems, the nationalisation of Bradford and Bingley should be the last of the banking accidents here,” our business correspondent said.

He said there was a class of bank that had relied heavily on the mortgage market – Northern Rock, HBOS, and B&B – and which had now either been nationalised or taken over.

“The remaining banks have much broader bases, they are less vulnerable,” he added.

However, B&B’s shareholders and holders of its subordinated debt may lose out.

Our business editor says the nationalisation and break-up of B&B represents a momentous event in the history of British banking.

“We can assure customers that their deposits are safe with Bradford & Bingley” Tony McGarahan Bradford & Bingley spokesman

He said: “It will mean that every building society that floated on the stock market in the wave of demutualisations of the past two decades will either have collapsed or been sold to a conventional bank.”

B&B was close to seeing a demand from depositors for the return of billions of pounds, which it would have been unable to find.

Credit rating agencies had been downgrading the rating of its covered bonds, a form of funding which involves packaging up mortgages for sale to investors.

Liberal Democrat treasury spokesman Vince Cable said: “There doesn’t seem to have been a white knight in the offing. The alternative otherwise was just to let the thing go bust and protect the depositors”.

Bradford & Bingley spokesman Tony McGarahan said discussions were taking place and an announcement would be made before the stock market opened on Monday.

“We can assure customers that their deposits are safe with Bradford & Bingley,” he said.

News reported by The BBC

The new chairman of the Financial Services Authority (FSA) has said it could penalise banks who pay bonuses that encourage excessive risk-taking.

Lord Adair Turner told BBC News that the FSA would not regulate how much was paid, but would ask banks to explain their bonus structures.

Banks found to encourage risky actions could be compelled to hold more capital, raising their costs.

Some believe bonuses should be based on longer-term results.

“What we are now doing is saying to banks, explain to us what your structure of bonuses are,” said Lord Turner.

“If we think they are in danger of encouraging people through that bonus structure to take risky actions which appear to look good at the time, but which create toxic assets for the future, then we have the power to say if you want to do that, you’ve got to hold a bit more capital because we think you’re a more risky institution.”

‘Back to basics’

There has been criticism that the bonus culture in the City contributed to the current financial crisis. However Lord Turner said this aspect should not be overstated.

He said other factors would be more important in ensuring there was no repeat of the credit crunch and the subsequent financial turmoil.

Lord Turner said regulators should, for example, monitor much more closely the level of liquidity in the system.

“We have to go back to basics in regulatory terms to make sure this doesn’t happen again in five or 10 years’ time,” said Lord Turner, who took over at the helm of the FSA on Saturday.

News reported by The BBC

Shares in Bradford & Bingley (B&B) climbed strongly in early trading on Monday, amid reports that it could be the next bank in line for a takeover.

Several reports suggested that the Financial Services Authority (FSA) has been holding talks with potential buyers, should B&B hit difficulties.

However, The Times said there was no firm interest so far, despite the overtures of the City watchdog.

The HBOS takeover by Lloyds TSB was given FSA and Treasury encouragement.

B&B shares were up as much as 10%, but ended the day 1.7% higher at 28.25 pence.

Royal Bank of Scotland shares were also up- which analysts said was on the back of plans for the US Treasury to create a ‘super-bank’ to buy mortgage-related debts from financial institutions.

Banks eligible to dump their toxic investments into this Treasury-backed bank would include RBS, which has a big retail business in the US.

“The absence of any such bidders so far adds to the uncertainty about B&B’s future” Sandy Chen Analyst, Panmure Gordon

Check Bradford & Bingley shares
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‘Bad sign’

According to the Sunday Telegraph, the FSA has been in contact with Abbey’s Spanish owner Santander, which recently bought Alliance & Leicester.

And the regulator has also been in touch with Dutch banking group ING and National Australia Bank – owner of Yorkshire and Clydesdale banks – to gauge interest, the paper said.

But the lack of firm interest was a “bad sign” said Panmure Gordon banking analyst Sandy Chen.

He warned that uncertainty could even lead to B&B customers taking their money out of the bank.

“The absence of any such bidders so far adds to the uncertainty about B&B’s future, in our view,” Mr Chen added

“Our concern is that significant retail deposit outflows may occur, forcing B&B to rely even more heavily on expensive wholesale funding.”

B&B has been badly hit by the credit crisis and a sharp downturn in the buy-to-let market.

It reported a loss of £26.7m for the six months to the end of June, against a £180.4m profit last year.

This included a sharp rise in credit impairment charges for the six months to £74.6m, up from £5.3m in the same period last year.

B&B recently completed a £400m share rights issue in order to improve its balance sheet.

News reported by The BBC

The FTSE 100 share index has closed more than 400 points higher, its biggest one-day rise, after the US confirmed a financial bail-out plan.

It ended the day 8.8% higher at 5311.3 points. But after a turbulent week on the markets, the FTSE was 105 points lower than its value on Monday.

Banking shares were amongst the biggest gainers, with Royal Bank of Scotland up 32% and Barclays and HBOS both up 29%.

They were helped by a ban on short-selling of financial shares.

“The breathtaking rises in the price of bank shares this morning are symptomatic of a stock market that is bereft of reason and is being driven almost purely by fear and momentum.” BBC Business Editor Robert Peston

What is short-selling?
See banking sector shares

The restriction was announced late on Thursday by the Financial Services Authority (FSA) which banned short-selling in a number of financial shares.

Short-selling involves traders profiting from falling share prices. The technique works when investors borrow shares from another investor, and then sell them hoping the price will fall.

The aim is then to buy back the asset at a lower price and return it to its owner, pocketing the difference.

Previously anyone could short a position in a company’s shares, but typically hedge funds were the main players.

The temporary ban on short-selling applies to 29 financial stocks.

It was introduced by the FSA due to concerns that short-selling had been a contributory factor in the sharp falls in HBOS shares before it was rescued by Lloyds TSB.

The ban, which came into force at midnight on Thursday, will last until 16 January but the FSA will review its operation in 30 days.

Short-selling in layman’s terms
“While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets,” said FSA chief executive Hector Sants.

Paul Edmondson of City lawyers CMS Cameron McKenna said he wasn’t sure if the ban on short-selling had been “fully thought through”.

“The move is obviously intended to stop further speculative attacks on bank share prices,” he said.

“Politically that must make sense – a perception of stability in the markets has to be a good thing and speculators’ profits are not a political priority.

“Unfortunately, the fact is that short sellers provide a lot of the liquidity in the market which will now disappear.”

The UK short-selling ban applies to shares in the following companies – Admiral, Alliance & Leicester, Alliance Trust, Arbuthnot, Aviva, Barclays, Bradford & Bingley, Brit Insurance, Chesnara, European Islamic Investment Bank, Friends Provident, HBOS, Highway Insurance, HSBC, Islamic Bank of Britain, Just Retirement Holdings, Legal & General, Lloyds TSB, London Scottish, Novae, Old Mutual, Prudential, Resolution, Royal Bank of Scotland Group, RSA Insurance, St James’s Place, Standard Chartered, Standard Life, and Tawa.

News reported by The BBC

The City regulator has announced restrictions on short-selling, whereby traders bet on share prices falling, in a bid to tackle market instability.

The Financial Services Authority (FSA) is clamping down on the practice that some believe contributed to the sharp falls in HBOS shares in recent days.

Some analysts argue that short-selling was a factor that led to the £12.2bn takeover of HBOS by Lloyds TSB.

The changes will be effective from midnight on Thursday.

The restrictions, which will be in force until 16 January 2009, will be reviewed after 30 days.

“While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets,” said FSA chief executive Hector Sants.

“There is a danger in a trading system which allows financial institutions to be targeted and subject to extreme short-selling pressures” Callum McCarthy Financial Services Authority chairman

‘Financial stability’

Short-selling is a technique that sees investors borrow an asset, such as shares, currencies or oil contracts, from another investor and then sell that asset in the relevant market hoping the price will fall.

The aim is to buy back the asset at a lower price and return it to its owner, pocketing the difference.

Anyone can short a position in a company’s shares, but typically hedge funds are the main players.

Chancellor Alistair Darling welcomed the move by the FSA.

“I believe it is the right thing to do in the current market conditions and in the interests of financial stability,” he said.

Markets have fluctuated hugely in recent days, with fundamental changes occurring in the financial landscape.

There are fears that several firms, including Lehman Brothers, which filed for bankruptcy at the start of the week, and insurance giant AIG, which was rescued by the Federal Reserve, were targeted by those short-selling.

Speaking to the BBC, Mr Darling underlined that short-selling was not wrong in itself.

“It can help actually in providing funds, liquidity, for companies.”

But he added that it could become a problem where people “deliberately” manipulate a market, making “a difficult situation even worse”.

Callum McCarthy, chairman of the Financial Services Authority, expressed concerns over recent volatility.

“There is a danger in a trading system which allows financial institutions to be targeted and subject to extreme short-selling pressures, because movements in equity prices can be translated into uncertainty in the minds of those who place deposits with those institutions with consequent financial stability issues.”

Broader moves

It was not only in the UK that attempts were being made to address short-shelling.

The US financial regulator, the Securities and Exchange Commission (SEC), also announced restrictions on short-selling on Wednesday.

And on Thursday, New York attorney general Andrew Cuomo said he would start a probe into short-selling.

At issue is whether certain traders exploited short-selling to push down stock prices, breaching market rules.

New York’s state pension funds said it would cease lending stocks in 19 firms to short-sellers on a temporary basis.

News reported by The BBC

The Financial Ombudsman Service (FOS) has called on regulators to take more action to stop the mis-selling of Payment Protection Insurance (PPI).

This year the FOS has been deluged with complaints about mis-sold PPI policies, and is upholding the majority of them.

A spokesman said the FOS had “very severe concerns” that complainants were being fobbed off by banks and insurers.

The Financial Services Authority will consider the FOS’s request at its board meeting later this month.

“PPI complaints have risen 10-fold in the past two years, and are now about 25% of all the complaints we get,” said an FOS spokesman.

Huge rise

The ombudsman is currently receiving more than 500 complaints a week about PPI policies, which are typically sold by banks when they make a loan to a customer.

“PPI complaints have risen ten-fold in the past two years, and are now about 25% of all the complaints we get” FOS spokesman

The insurance is supposed to cover someone in the event that they fall ill or lose their job and cannot repay a loan, credit card bill, or mortgage.

But consumer organisations have criticised the insurance as useless and little more than a profitable protection racket for the banking industry.

Earlier the consumers organisation Which? reported that 1.3 million people had bought PPI when taking out a credit card, under the mistaken belief that it was compulsory or would improve their chances of having their application approved.

But a spokesman for the British Bankers’ Association (BBA) has said action by the FSA is unnecessary.

“The financial services industry agrees that it is in the interests of customers to deal quickly and consistently with genuine complaints,” he said.

“But we do not agree that a regulatory response is needed to achieve this.

“Presently, the industry is actively working to determine the best way to handle PPI complaints across all providers consistently and efficiently,” he added.

Consumer detriment

The Ombudsman has written to the FSA saying it believes the complaints are now so widespread that it has spotted a “trend to consumer detriment”, which has “wider implications.”

The FSA offers advice to consumers on buying PPI policies

The spokesman said the FOS was particularly worried that banks and other organisations in the financial services industry were failing to deal with initial PPI complaints properly.

“We are particularly concerned that firms should have a very good idea of how we deal with unresolved complaints but they are still coming through,” he said.

“The complaints are so similar to those we have already settled in consumers’ favour that we are worried that firms are not learning the lessons from this and are not treating customers fairly,” he added.

Citizens Advice, which first lodged a formal “super complaint” about PPI three years ago, said it was not surprised by the experience of the FOS.

“We are still seeing cases where PPI is sold improperly, despite the FSA’s new rules on PPI sales,” said Sue Edwards of Citizens Advice.

“Many of these cases involve High Street banks and credit card companies,” she said.

The FOS has already had extensive discussions with the banking industry, but is worried that organisations that sell PPI are “not getting the message.”

One bank, RBS/NatWest, has responded to the FOS’s approach to the FSA by changing its attitude to dealing with customer complaints about PPI.

According to an internal bank memo, dated 22 August, the bank decided “at Group Senior Executive level to reduce the volume of complaints going to FOS” to demonstrate to the FSA and FOS that their concerns have been taken on board.

Tighter rules

The Ombudsman has not asked for specific measures to be taken by the FSA.

“We are highly aware of the issues in the PPI market” FSA spokesman

But its call is likely to prompt further action by the regulator, which has already been undertaking a long investigation into the way PPI is sold.

The FSA has already fined or censured 18 firms or individuals for mis-selling the insurance.

Its investigation, which is now in its third phase, will come to fruition in the next few months and may lead to further restrictions on the way PPI is sold.

“We are highly aware of the issues in the PPI market,” said an FSA spokesman.

Doug Taylor of Which? encouraged the FSA to take action.

“There clearly is a big problem with PPI, and the FSA should use its rules to stamp out bad practice,” he said.

Earlier this year the regulator introduced tougher rules on how PPI could be sold.

And in June the Competition Commission concluded that banks and insurers were overcharging their PPI customers by £1.4bn a year.

It blamed at lack of competition at the point of sale when people took out a loan, and suggested that selling PPI at the same time as approving a loan might be banned.

The commission will make its final recommendations in November or December.

News reported by The BBC

An investigation is under way into how a computer containing bank customers’ personal data was sold on eBay.

The computer, bought by IT manager Andrew Chapman for £77, had the sensitive details on its hard drive.

Mr Chapman, from Oxford, said the machine contained information on several million bank customers.

Details of customers of three companies, including the Royal Bank of Scotland (RBS) and its subsidiary, Natwest, were involved.

RBS said an archiving firm told it the computer had been “inappropriately sold on via a third party”.

It said historical information relating to credit card applications for its bank and others had been on the machine.

Basic knowledge

The information is said to include account details and in some cases customers’ signatures, mobile phone numbers and mothers’ maiden names.

Andrew Champman on how he ‘bought’ bank customers’ details

The problem came to light when Mr Chapman, 56, bought the computer, noticed the data and raised the alarm.

He said: “I was appalled when I found the bank account information. That sort of thing shouldn’t have been listed on there.”

Mr Chapman said anyone with a basic knowledge of computer software would have been able to find the data fairly simply.

“The information was in back-up CDs and in ISO files so it would have been possibly quite easy to find if you know something about computers,” he said.

Extremely regrettable

RBS and Natwest said they were taking the issue very seriously and were working to resolve it “as a matter of urgency”.

A spokeswoman for the third company reported to be involved, American Express, said it took the security of its card members’ data “extremely seriously”.

“We are currently working as a matter of priority to establish exactly what data is impacted and identify the card members who may be affected,” she said.

A spokeswoman for data processing company Mail Source, which is part of the archiving firm Graphic Data, said it was investigating how the computer equipment had been removed from a secure location.

“The IT equipment that appeared on eBay was neither planned nor instructed by the company to be disposed,” she said.

The incident was “extremely regrettable” and the firm was “taking every possible step” to retrieve the data and ensure it was an isolated incident, she added.

“Clearly such details should never have been included in the hard drive of the computer offered for sale on eBay” eBay spokesman

A spokesman for eBay said the firm was also looking into what had happened.

“Clearly such details should never have been included in the hard drive of the computer offered for sale on eBay,” said the spokesman.

“We fully expect Mr Chapman to hand it back to Graphic Data as soon as possible. We will of course work with Graphic Data to establish how it came to be available for sale on our site.”

The Information Commissioner’s Office said an investigation would be launched as soon as Mr Chapman had handed the computer in to them.

A spokeswoman said: “We are now investigating this potential data breach and will be seeking an urgent explanation from Graphic Data to establish what has gone wrong and the steps that are being taken to prevent a similar incident occurring.”

Banks have an obligation under the Data Protection Act to keep all personal information secure.

Last year the Financial Services Authority fined the Nationwide Building Society £980,000 for a security breach, after a laptop containing customer data was stolen from an employee’s home.

News reported by The BBC

Five motor dealerships have been fined by the Financial Services Authority (FSA) for mis-selling payment protection insurance (PPI).

Between them the five were fined a total of £175,000.

The FSA said there had been “serious breaches” of the rules and that 2,175 customers had been put at risk of buying polices that were unsuitable.

PPI was sold so that people could repay their car loans if they fell sick or lost their jobs.

“Motor retailers that sell PPI have to meet the same standards as the rest of the financial services industry,” said Margaret Cole of the FSA.

“All firms selling PPI must treat their customers fairly, including taking proper steps to make sure sales are suitable and customers are eligible to claim on the policy,” she added.

The five dealerships are GK Group, George White Motors, Ringways Garages (Leeds), Ringways Garages (Doncaster), and Park’s of Hamilton.

The FSA said they had failed to check if the customers circumstances meant they might be excluded from claiming on a policy after it had been sold, and did not monitor the quality of advice being given by their sales staff.

‘Protection racket’

The FSA took up problems with the sale of PPI three years ago.

At the time the consumer organisation Citizens Advice dubbed the sale of PPI policies a “protection racket”, saying they were often too expensive and failed to provide the level of cover that customers thought they were getting.

This was followed by investigations by both the Office of Fair Trading and the Competition Commission.

Since 2006 the FSA has fined 11 firms and censured two motor dealerships as part of its campaign to stop people being sold policies when they are either unnecessary, not explained properly, or sneaked into the cost of a loan without the customer realising.

In June this year the Competition Commission found that people were being overcharged by the financial services industry to the tune of £1.4bn a year when they PPI policies.

It said this was due to a lack of competition, and suggested that one remedy might be a ban on firms selling the insurance when they take out loans.

The wider publicity being given to the problems of PPI led earlier this year to the Financial Ombudsman Service receiving a surge of complaints about alleged mis-selling.

News reported by The BBC

Investors have been warned to beware of fraudsters targeting former customers of a stockbroking firm that was shut by the Financial Services Authority.

The FSA said at least 10 bogus “recovery” firms were cold-calling former clients of Pacific Continental Securities, which was closed last year.

The firms have been trying to trick people into paying a fee in exchange for offering to buy their shares.

The FSA said the firms were not authorised or permitted to do business.

“These firms offer to buy the shares at an attractive price but demand an advance fee,” the FSA explained.

“This is a scam – as soon as the fee is paid, the firm disappears with the money and without purchasing the shares,” it warned.

As well as offering to buy shares directly, the bogus firms also make equally fraudulent offers to put people in contact with other potential buyers.

The regulator said it was investigating the numerous complaints it had received and advised anyone approached in this manner to contact it.

Pacific Continental securities went bust in June 2007 after the FSA withdrew its permission to trade and told it to settle its remaining business.

In March last year the firm was identified by the BBC’s Money Programme as acting like a “boiler room”, a fake stockbroking outfit which uses hard-sell techniques to deceive people into buying worthless shares.

Boiler rooms usually operate from foreign countries outside the direct control of the UK authorities.

News reported by The BBC