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imported>Doug Williamson
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  |header9 =
  |header9 =
  | label9 = Other professional financial/banking associations:
  | label9 = Other professional financial/banking associations:
  |  data9 = [https://www.bba.org.uk British Bankers’ Association],  
  |  data9 = [https://www.ukfinance.org.uk/ UK Finance],  
[http://www.ifslearning.ac.uk Chartered Institute of Bankers], [http://www.afme.eu Association for Financial Markets in Europe]
[http://www.ifslearning.ac.uk Chartered Institute of Bankers], [http://www.afme.eu Association for Financial Markets in Europe]


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===Financial Policy Committee===
===Financial Policy Committee===
The FPC is charged with macro-prudential regulation and therefore has a primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The FPC also has a secondary objective, which is to support the economic policy of the Government. Unlike the FCA and the PRA, the FPC does not have direct regulatory responsibility for any particular types of firm, but rather for the overall financial system.
The FPC is charged with macro-prudential regulation and therefore has a primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The FPC also has a secondary objective, which is to support the economic policy of the government. Unlike the FCA and the PRA, the FPC does not have direct regulatory responsibility for any particular types of firm, but rather for the overall financial system.


===UK Financial Investments===
===UK Financial Investments===
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===EMIR derivatives reform===
===EMIR derivatives reform===
The European Market Infrastructure Regulation (EMIR) came into force on 16 August 2012 across all EU states, and is a comprehensive reform of the OTC derivatives markets. The regulation empowered the European Securities and Markets Authority (ESMA) to determine the final technical standards which came into force during 2013 and 2014.
The European Market Infrastructure Regulation (EMIR) came into force on 16 August 2012 across all [[European Union]] (EU) states, and is a comprehensive reform of the OTC derivatives markets. The regulation empowered the European Securities and Markets Authority (ESMA) to determine the final technical standards which came into force during 2013 and 2014.
EMIR obligations vary according to the type of entity, as EMIR distinguishes between financial counterparties (FCs) and non-financial counterparties (NFCs). What this means in practical terms is that the vast majority of non-financial counterparties will benefit from certain exemptions from major parts of EMIR.  
EMIR obligations vary according to the type of entity, as EMIR distinguishes between financial counterparties (FCs) and non-financial counterparties (NFCs). What this means in practical terms is that the vast majority of non-financial counterparties will benefit from certain exemptions from major parts of EMIR.  


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* Non-EU counterparties entering into contracts with EU counterparties.
* Non-EU counterparties entering into contracts with EU counterparties.
* OTC derivative contracts between non-EU counterparties (where certain conditions are met).
* OTC derivative contracts between non-EU counterparties (where certain conditions are met).
* The UK post-Brexit.


===Key obligations===
===Key obligations===
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The Single Euro Payments Area (SEPA) is a European Commission (EC) and European Payments Council (EPC) initiative which has removed the barriers and complexity of making pan European Euro Payments, by adhering to a single set of standards. Importantly, SEPA has aligned the cost of cross-border transfers with that of domestic euro electronic transfers, resulting in significant cost reductions. SEPA is underpinned by the Payment Services Directive, which provides the legal foundation for the creation of an EU-wide single market for payments. Migration of credit transfers and direct debits to SEPA for countries within the eurozone has gradually been completed over the past year.
The Single Euro Payments Area (SEPA) is a European Commission (EC) and European Payments Council (EPC) initiative which has removed the barriers and complexity of making pan European Euro Payments, by adhering to a single set of standards. Importantly, SEPA has aligned the cost of cross-border transfers with that of domestic euro electronic transfers, resulting in significant cost reductions. SEPA is underpinned by the Payment Services Directive, which provides the legal foundation for the creation of an EU-wide single market for payments. Migration of credit transfers and direct debits to SEPA for countries within the eurozone has gradually been completed over the past year.
Under the SEPA scheme the use of International Bank Account Numbers (IBANs) and Bank Identification Codes (BICs) is now mandatory for cross-border euro payments. This, together with the associated rising costs and penalties of submitting payments with incorrect BIC and IBAN data, means there is a need for cross-border validation at an early stage of the funds transfer process. Migration to BIC and IBAN can be time consuming and costly, particularly for organisations that need to update large numbers of account details.
Under the SEPA scheme the use of International Bank Account Numbers (IBANs) and Bank Identification Codes (BICs) is now mandatory for cross-border euro payments. This, together with the associated rising costs and penalties of submitting payments with incorrect BIC and IBAN data, means there is a need for cross-border validation at an early stage of the funds transfer process. Migration to BIC and IBAN can be time consuming and costly, particularly for organisations that need to update large numbers of account details.
SEPA Direct Debits (SDD) was first launched in late 2009. This allows Direct Debit originators to collect pan-European Direct Debits from any of the SEPA countries using a single Direct Debit service instead of the country specific services that currently exist. SCT and SDD will eventually replace existing national payment schemes.
SEPA Direct Debits (SDD) was first launched in late 2009. This allows Direct Debit originators to collect pan-European Direct Debits from any of the SEPA countries using a single Direct Debit service instead of the country specific services that currently exist. SCT and SDD will eventually replace existing national payment schemes. SEPA continues to apply to the UK post-Brexit.


===SEPA Direct Debit (Business to Business Scheme)===
===SEPA Direct Debit (Business to Business Scheme)===
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==Accounting framework==
==Accounting framework==
Since 2005, UK companies listed on a regulated EU securities market have been required to prepare their consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Companies listed on the Alternative Investment Market (AIM) are required by the AIM listing rules to prepare IFRS financial statements. Unlisted companies in the UK prepare their financial statements in accordance with UK Generally Accepted Accounting Principles (GAAP). The UK Accounting Standards Board will move all unlisted entities (apart from very small entities and some subsidiaries of groups already reporting in accordance with IFRS) in the UK to new UK GAAP, known as FRS 102 (modelled after an international standard for small and medium-sized entities IFRS for SMEs), by the end of 2015. Alternatively, any UK company can already choose to apply full IFRS (see below).
Since 2005, UK companies listed on a regulated EU securities market have been required to prepare their consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Companies listed on the Alternative Investment Market (AIM) are required by the AIM listing rules to prepare IFRS financial statements. These requirements continue to apply post-Brexit. Unlisted companies in the UK prepare their financial statements in accordance with UK Generally Accepted Accounting Principles (GAAP). The UK Accounting Standards Board will move all unlisted entities (apart from very small entities and some subsidiaries of groups already reporting in accordance with IFRS) in the UK to new UK GAAP, known as FRS 102 (modelled after an international standard for small and medium-sized entities IFRS for SMEs), by the end of 2015. Alternatively, any UK company can already choose to apply full IFRS (see below).


===International Financial Reporting Standards===
===International Financial Reporting Standards===
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The Financial Accounting Standards Board (FASB), the standard setter in the US, and the IASB have been working together since 2002 in order to promote conversion between IFRS and US accounting standards (US GAAP). When adding an item to its agenda, the IASB considers its convergence initiatives with US GAAP and it conducts some projects jointly with FASB. However, the original deadline for convergence of accounting standards (2011) was missed. The Securities and Exchange Commission (SEC) in the US has, in effect, postponed indefinitely the project of allowing or requiring US companies to use IFRS. Since 2007, however, UK companies with a US listing known as Foreign Private Issuer (FPI) have been able to file their IFRS accounts with the SEC without including a reconciliation to US GAAP numbers.  
The Financial Accounting Standards Board (FASB), the standard setter in the US, and the IASB have been working together since 2002 in order to promote conversion between IFRS and US accounting standards (US GAAP). When adding an item to its agenda, the IASB considers its convergence initiatives with US GAAP and it conducts some projects jointly with FASB. However, the original deadline for convergence of accounting standards (2011) was missed. The Securities and Exchange Commission (SEC) in the US has, in effect, postponed indefinitely the project of allowing or requiring US companies to use IFRS. Since 2007, however, UK companies with a US listing known as Foreign Private Issuer (FPI) have been able to file their IFRS accounts with the SEC without including a reconciliation to US GAAP numbers.  
In response to the financial crisis and the demands by G20 to achieve global convergence of accounting standards, the replacement project for IAS 39 (which addresses recognition and measurement of financial assets and liabilities) was accelerated. The replacement of financial instruments standards under IFRS and US GAAP are run as separate projects and significantly different models have been proposed. Recently the IASB and FASB renewed their efforts to bring their respective future financial standards closer together at least on some practical level (e.g. by requiring disclosures that could allow users to reconcile the numbers from different accounting models).
In response to the financial crisis and the demands by G20 to achieve global convergence of accounting standards, the replacement project for IAS 39 (which addresses recognition and measurement of financial assets and liabilities) was accelerated. The replacement of financial instruments standards under IFRS and US GAAP are run as separate projects and significantly different models have been proposed. Recently the IASB and FASB renewed their efforts to bring their respective future financial standards closer together at least on some practical level (e.g. by requiring disclosures that could allow users to reconcile the numbers from different accounting models).
To be applicable in the UK an IFRS must be endorsed by the EU. This endorsement is a complex political process that involves various EU bodies including the European Commission, its expert advisers and the European Parliament. Historically the EU approved most new standards and interpretations within six to nine months of their publication by IASB. Recently EU endorsement of the new standards has become more difficult – for example, the adoption of phase I of IFRS 9, which addressed accounting for financial assets, was deferred in late 2009. In fact, it has been made subject to the completion of the entire IAS 39 replacement project. The original mandatory effective date for IFRS 9 Financial Instruments was 1 January 2013 and was later amended to 1 January 2015. In November 2013, the IASB published IFRS 9 Financial Instruments (2013) and decided to revisit the effective date after all phases of the IAS 39 replacement project were complete and a final version of IFRS 9 issued. On 20 February 2014, the IASB finalised its deliberations on the impairment project and limited amendments to classification and measurement requirements for IFRS, and announced that the effective date for IFRS 9 shall be 1 January 2018.
To be applicable in the UK an IFRS must be endorsed by the EU. This endorsement is a complex political process that involves various EU bodies including the European Commission, its expert advisers and the European Parliament. Historically the EU approved most new standards and interpretations within six to nine months of their publication by IASB. Recently EU endorsement of the new standards has become more difficult – for example, the adoption of phase I of IFRS 9, which addressed accounting for financial assets, was deferred in late 2009. In fact, it has been made subject to the completion of the entire IAS 39 replacement project. The original mandatory effective date for IFRS 9 Financial Instruments was 1 January 2013 and was later amended to 1 January 2015. In November 2013, the IASB published IFRS 9 Financial Instruments (2013) and decided to revisit the effective date after all phases of the IAS 39 replacement project were complete and a final version of IFRS 9 issued. The new IFRS 9 became effective from 1 January 2018.
The IASB published its second exposure draft (the ED) on lease accounting in May 2013. The ED requires that all leases (apart from those shorter than 12 months) are recorded on the balance sheet as debt. If adopted, this new IFRS would represent a significant change and could lead to an increase in reported financial leverage especially for lessees that use operating leases heavily (such as airlines and the majority of the supermarket chains). However, an effective date for the new leases IFRS is unlikely before 2017.  


===UK GAAP===
===UK GAAP===
All other unlisted companies, and some subsidiaries of listed groups currently prepare accounts in accordance with UK Companies Act 2006 and UK accounting standards.
All other unlisted companies, and some subsidiaries of listed groups currently prepare accounts in accordance with UK Companies Act 2006 and UK accounting standards.
Very small companies continue to be able to report under the Financial Reporting Standard for Smaller Entities (FRSSE), which gives exemptions from applying all other accounting standards.
UK Companies Act 2006 recognises the Financial Reporting Council (FRC) as the authority that issues accounting standards. The FRC took over that function from the Accounting Standards Board (ASB) in 2012. Accounting standards developed by the ASB are contained in financial reporting standards (FRSs) and statements of standard accounting practice (SSAPs). While some of the SSAPs have been superseded by FRSs, some remain in force (such as SSAP 20, covering foreign currency). Some industries have developed Statements of Recommended Practice (SORPs), which provide further clarification of the application of UK GAAP for those industries. The SORPs can never override the standards. Executive summaries of all UK standards in issue are available on the FRC website (www.frc.org.uk/asb).
UK Companies Act 2006 recognises the Financial Reporting Council (FRC) as the authority that issues accounting standards. The FRC took over that function from the Accounting Standards Board (ASB) in 2012. Accounting standards developed by the ASB are contained in financial reporting standards (FRSs) and statements of standard accounting practice (SSAPs). While some of the SSAPs have been superseded by FRSs, some remain in force (such as SSAP 20, covering foreign currency). Some industries have developed Statements of Recommended Practice (SORPs), which provide further clarification of the application of UK GAAP for those industries. The SORPs can never override the standards. Executive summaries of all UK standards in issue are available on the FRC website (www.frc.org.uk/asb).
Existing UK GAAP standards will be retired and all unlisted entities must apply FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” for accounting periods starting on or after 1 January 2015, unless they elect to apply IFRS 101 or the FRSSE. FRS 102 is based largely on IFRS for SMEs, which is an IFRS developed by the IASB specifically for small and medium-sized entities. It is a standalone set of reporting requirements contained in one comprehensive standard. The rationale for replacing UK GAAP (as communicated by the ASB) includes the cost of maintaining it and the complexity created by only partial convergence with IFRS.  
All unlisted entities must apply FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” for accounting periods starting on or after 1 January 2015, unless they elect to apply IFRS 101 or FRS 105. FRS 102 is based largely on IFRS for SMEs, which is an IFRS developed by the IASB specifically for small and medium-sized entities. It is a standalone set of reporting requirements contained in one comprehensive standard. The rationale for replacing UK GAAP (as communicated by the ASB) includes the cost of maintaining it and the complexity created by only partial convergence with IFRS.  


The two main differences with full IFRS are that FRS 102:
The two main differences with full IFRS are that FRS 102:
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An entity applying FRS 102 may not revert to full IFRS in relation to any topic area except for financial instruments. An entity may choose to apply IAS 39 or IFRS 9 in relation to recognition and measurement of financial instruments, but without the accompanying onerous disclosure requirements. Such a choice must be applied consistently from one year to the next. It represents an important win-win position given the significant restrictions on hedge accounting contained in FRS 102. In fact, if the EU endorsement process for IFRS 9 is delayed, then unlisted UK entities would be entitled to apply IFRS 9 general hedge accounting rules (considered as a major improvement on IAS 39) before listed UK groups could. The FRC plans to issue exposure drafts amending FRS 102 in relation to hedge accounting and impairment of financial assets when IFRS 9 “Financial Instruments” is finalised.
An entity applying FRS 102 may not revert to full IFRS in relation to any topic area except for financial instruments. An entity may choose to apply IAS 39 or IFRS 9 in relation to recognition and measurement of financial instruments, but without the accompanying onerous disclosure requirements. Such a choice must be applied consistently from one year to the next. It represents an important win-win position given the significant restrictions on hedge accounting contained in FRS 102. In fact, if the EU endorsement process for IFRS 9 is delayed, then unlisted UK entities would be entitled to apply IFRS 9 general hedge accounting rules (considered as a major improvement on IAS 39) before listed UK groups could. The FRC plans to issue exposure drafts amending FRS 102 in relation to hedge accounting and impairment of financial assets when IFRS 9 “Financial Instruments” is finalised.
The benefits of FRS 102 include international consistency and alignment to the general principles of full IFRS. Not-for-profit entities, such as housing associations, educational institutions and charities, also known as “Public Benefit Entities”, will have to apply the new UK GAAP as well, with additional guidance covering specific reporting issues not envisaged by FRS 102.
The benefits of FRS 102 include international consistency and alignment to the general principles of full IFRS. Not-for-profit entities, such as housing associations, educational institutions and charities, also known as “Public Benefit Entities”, will have to apply the new UK GAAP as well, with additional guidance covering specific reporting issues not envisaged by FRS 102.
Subsidiaries of groups that prepare full EU-adopted IFRS consolidated financial statements may apply FRS 101 “Reduced Disclosure Framework” that allows them to keep full IFRS measurement principles (in line with their group reporting) with only limited additional disclosures in their individual standalone entity accounts. In addition to being included in the consolidated IFRS accounts of the parent the subsidiary falls outside EU full IFRS requirements and will not be subject to any objection from shareholders holding 5% or more of total allotted shares in the entity.  
Subsidiaries of groups that prepare full EU-adopted IFRS consolidated financial statements may apply FRS 101 “Reduced Disclosure Framework” that allows them to keep full IFRS measurement principles (in line with their group reporting) with only limited additional disclosures in their individual standalone entity accounts. In addition to being included in the consolidated IFRS accounts of the parent the subsidiary falls outside EU full IFRS requirements and will not be subject to any objection from shareholders holding 5% or more of total allotted shares in the entity.


==Taxation framework==
==Taxation framework==
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In May 2015, there were 155 banks incorporated in the UK, 104 UK branch authorised European institutions (73 with UK deposit taking authority) and 82 UK branch authorised and deposit taking banks from other countries.  
In May 2015, there were 155 banks incorporated in the UK, 104 UK branch authorised European institutions (73 with UK deposit taking authority) and 82 UK branch authorised and deposit taking banks from other countries.  
A list of UK regulated institutions [http://www.bankofengland.co.uk/pra/Pages/authorisations/banksbuildingsocietieslist.aspx is published monthly by the PRA]
A list of UK regulated institutions [http://www.bankofengland.co.uk/pra/Pages/authorisations/banksbuildingsocietieslist.aspx is published monthly by the PRA]
Britain’s commercial banking sector is the largest in the EU, holding assets of over £5 trillion, with around 50% of total assets held by foreign banks. UK banking sector assets are the fourth largest in the world after China, US and Japan. The UK is also the world’s largest centre for cross-border bank lending, accounting for around a fifth of the world total. The UK's financial services industry contributes around 10% to the total UK GDP.
Britain’s commercial banking sector is larger than those of any EU member state, holding assets of over £5 trillion, with around 50% of total assets held by foreign banks. UK banking sector assets are the fourth largest in the world after China, US and Japan. The UK is also the world’s largest centre for cross-border bank lending, accounting for around a fifth of the world total. The UK's financial services industry contributes around 10% to the total UK GDP.


==Clearing and payment systems==
==Clearing and payment systems==
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===Debit cards===
===Debit cards===
In 2013, 45.6% of non-cash payments were made by debit card. In 2012. there were 37.9 million regular users of debit cards, each making 199 payments on average during the year in the UK with an average transaction value of £42.
The number of debit card payments is forecast to grow substantially, and total spending on them to increase significantly.
The number of debit card payments is forecast to grow from 7.6 billion to 13.8 billion payments between 2012 and 2022, and spending to increase from £337bn to £626bn over the same period. It is predicted that in 2022, cards will account for 52% of non-cash payment volumes.


===Credit cards===
===Credit cards===
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===UK payments industry===
===UK payments industry===
UK Payments Administration Ltd provides people, facilities and expertise to the UK payments industry, which consists of a number of different players within separate industry groups, responsible for a distinct aspect of money transmission activity. These include:
UK Payments Administration Ltd provides people, facilities and expertise to the UK payments industry, which consists of a number of different players within separate industry groups, responsible for a distinct aspect of money transmission activity. These include:
* Bacs;
Bacs;
* CHAPS;
CHAPS;
* Faster Payments;
Faster Payments;
* Cheque and Credit Clearing Company;
Cheque and Credit Clearing Company;
 
Belfast Bankers' Clearing Company Limited (BBCCL);
* Dedicated Cheque and Plastic Crime Unit (DCPCU);  
Dedicated Card and Payment Crime Unit (DCPCU);  
* Financial Fraud Action UK;
SWIFT UK; and
* Payments Council;
UK Finance.
* The UK Cards Association; and
* SWIFT UK.


The main organisations active in the payment clearing system are:
The main organisations active in the payment clearing system are:
* '''Bacs Payment Schemes Ltd''' – Bacs is the not-for-profit organisation behind the clearing and settlement of UK automated payment methods Direct Debit and Bacs Direct Credit. The company is owned by 16 of the leading banks and building societies in the UK, Europe and the US and, in 2012, was responsible for processing more than 5.6 billion UK payments with a total value of £4.15 trillion.  
* '''Bacs Payment Schemes Ltd''' – Bacs is the not-for-profit organisation behind the clearing and settlement of UK automated payment methods Direct Debit and Bacs Direct Credit. The company is owned by 16 of the leading banks and building societies in the UK, Europe and the US and, in 2014, was responsible for processing 5.8 billion UK payments with a total value of £4.42 trillion.  
* '''CHAPS''' – CHAPS is one of the largest real-time gross settlement (“RTGS”) systems in the world and processes electronic, bank-to-bank, same-day value payment made within the UK in sterling. Transactions are settled between the member banks on an RTGS basis. This means that the value of individual payments is transferred between banks as they are made and provides risk-free, efficient and reliable same-day payments. In 2012 CHAPS volumes were virtually static with 34 million CHAPS payments totalling £71 trillion. With 21 members and 4,500 financial institutions using agency arrangements to access its services, CHAPS remains a key player in the industry. Utilised by banks themselves to move money around the financial system, CHAPS is also used regularly for business-to-business payments and by individuals buying or selling high-value items requiring a secure, urgent, same-day guaranteed payment.
* '''CHAPS''' – CHAPS is one of the largest real-time gross settlement (“RTGS”) systems in the world and processes electronic, bank-to-bank, same-day value payment made within the UK in sterling. Transactions are settled between the member banks on an RTGS basis. This means that the value of individual payments is transferred between banks as they are made and provides risk-free, efficient and reliable same-day payments. In 2014 CHAPS volumes were virtually static with 36.5 million CHAPS payments totalling £67.96 trillion. With 21 members, CHAPS remains a key player in the industry. Utilised by banks themselves to move money around the financial system, CHAPS is also used regularly for business-to-business payments and by individuals buying or selling high-value items requiring a secure, urgent, same-day guaranteed payment.
* '''Faster Payments''' – Introduced in May 2008, Faster Payments is the first payment service launched in the UK for over 20 years. The service has enabled phone, internet and standing order payments to move within seconds on a 24 * 7 * 365 basis. Since launch, volumes have continued to grow substantially – gaining an additional boost following the introduction of the D+1 execution time requirement under the Payment Services Regulations in January 2012. This resulted in a total of 811 million Faster Payments being processed in 2012, of which 37% were Standing Orders. The value limit for Faster Payments is £100,000 per transaction; however, individual banks and building societies will continue to set their own value limits for their corporate and consumer customers.
* '''Faster Payments''' – Introduced in May 2008, Faster Payments is the first payment service launched in the UK for over 20 years. The service has enabled phone, internet and standing order payments to move within seconds on a 24 * 7 * 365 basis. Since launch, volumes have continued to grow substantially – gaining an additional boost following the introduction of the D+1 execution time requirement under the Payment Services Regulations in January 2012. This resulted in a total of 1.1 billion Faster Payments being processed in 2014. The value limit for Faster Payments is £100,000 per transaction; however, individual banks and building societies will continue to set their own value limits for their corporate and consumer customers.
* '''Cheque and Credit Clearing Company'' – As well as managing the cheque clearing system in the UK, which also processes bankers’ drafts, building society cheques, postal orders, warrants and government payable orders, the Cheque and Credit Clearing Company’s remit includes the management of the systems for clearing paper bank giro credits and euro-denominated cheques. With the migration to more electronic payment types, the volume of cheques being processed is reducing, with 2012 volumes being 85 million down from 2011 to 597 million items.
* '''Cheque and Credit Clearing Company'' – As well as managing the cheque clearing system in the UK, which also processes bankers’ drafts, building society cheques, postal orders, warrants and government payable orders, the Cheque and Credit Clearing Company’s remit includes the management of the systems for clearing paper bank giro credits and euro-denominated cheques. With the migration to more electronic payment types, the volume of cheques being processed is reducing, with 2014 volumes being 66 million down from 2013 to 499 million items.


===Payment system volumes===
===Payment system volumes===
In 2012, the UK schemes processed:
In 2014, the UK schemes processed:
* 5.6 billion Bacs direct credits and debits;
* 5.8 billion Bacs direct credits and debits;
* 34 million CHAPS payments;
* 36.5 million CHAPS payments;
* 644 million cheques and credits; and
* 499 million cheques and credits; and
* 811 million Faster Payments.
* 1.1 billion Faster Payments.
With a combined value of £77 trillion.
With a combined value of £73.8 trillion.


==Cash and bank account management==
==Cash and bank account management==
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===Electronic banking===
===Electronic banking===
Only 10 years ago, internet banking was not mainstream. Now electronic banking services are available from all the UK clearing banks and research suggests that some 80% of UK banking customers use online banking. Systems are becoming ever more sophisticated, allowing not only a range of balance and transaction information, but permitting management of accounts across organisations and obviating the requirement for users to access a branch at all. Indeed many accounts are now simply internet only, offering value-added benefits to reflect the cost savings created.
Only 10 years or so ago, internet banking was not mainstream. Now electronic banking services are available from all the UK clearing banks and research suggests that some 77% of UK banking customers use online or mobile banking. Systems are becoming ever more sophisticated, allowing not only a range of balance and transaction information, but permitting management of accounts across organisations and obviating the requirement for users to access a branch at all. Indeed many accounts are now simply internet only, offering value-added benefits to reflect the cost savings created.
Real-time information is now standard, allowing businesses to increasingly use electronic banking to manage accounts in multiple currencies and across borders, giving treasurers a global snapshot of their organisation’s cash position at any one time.
Real-time information is now standard, allowing businesses to increasingly use electronic banking to manage accounts in multiple currencies and across borders, giving treasurers a global snapshot of their organisation’s cash position at any one time.
With processes to enable automatic sweeps and pooling, businesses and individuals can control funds to maximise returns. More and more, financial institutions are integrating their electronic banking services with the back-office systems of their major customers, enabling a seamless transfer of information and transactional data to make accounting functions more efficient.
With processes to enable automatic sweeps and pooling, businesses and individuals can control funds to maximise returns. More and more, financial institutions are integrating their electronic banking services with the back-office systems of their major customers, enabling a seamless transfer of information and transactional data to make accounting functions more efficient.
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===M-commerce===
===M-commerce===
Mobile technology continues its rapid advance, with handsets and packages becoming increasingly sophisticated. Mobile banking has taken off with every large bank offering mobile banking on multiple platforms with the range of functionality growing fast as banks continue to innovate. This has been driven by the explosion in the sales of tablets and mobile devices, which outsold laptops for the first time in 2013. As well as being able to manage accounts and authorise payments through mobile devices, there is increasing competitive and regulatory demand for mobile payments, where the mobile device plays an integral role in the payment process. Whether being able to make or receive payments, banks are innovating in order to utilise the ubiquity of mobile phones to initiate high-margin, low-value payments where the mobile device can be linked to a card or account to settle payments.  
Mobile technology continues its rapid advance, with handsets and packages becoming increasingly sophisticated. Mobile banking has taken off with every large bank offering mobile banking on multiple platforms with the range of functionality growing fast as banks continue to innovate. This has been driven by the explosion in the sales of tablets and mobile devices, which outsold laptops for the first time in 2013. As well as being able to manage accounts and authorise payments through mobile devices, there is increasing competitive and regulatory demand for mobile payments, where the mobile device plays an integral role in the payment process. Whether being able to make or receive payments, banks are innovating in order to utilise the ubiquity of mobile phones to initiate high-margin, low-value payments where the mobile device can be linked to a card or account to settle payments.  
Over 30 million accountholders currently have access to mobile banking services through the Paym mobile phone payment service, launched in April 2014 by the Payments Council.
Over 40 million accountholders currently have access to mobile banking services through the Paym mobile phone payment service, launched in April 2014 by the Payments Council.


===Anti money laundering===
===Anti money laundering===
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===Market benchmarks===
===Market benchmarks===
The weekly intervention rate is the rate at which the Bank of England is willing to transact business with the money market in negotiable instruments with short-term maturities, notably gilt repo and treasury bills. This rate determines the base rate at which banks in the UK charge for overdraft credit facilities (excluding credit margins), and reflects current UK Monetary Policy Committee policy.
The weekly intervention rate is the rate at which the Bank of England is willing to transact business with the money market in negotiable instruments with short-term maturities, notably gilt repo and treasury bills. This rate determines the base rate at which banks in the UK charge for overdraft credit facilities (excluding credit margins), and reflects current UK Monetary Policy Committee policy.
The London inter-bank offered rate (Libor) is a composite of the rates at which prime banks in the London market are willing to lend to others, in time periods ranging from overnight up to one year. Administered by the British Bankers’ Association, the rate is released daily, shortly after 11am, and is widely used as a benchmark for setting the interest rate on draw-downs on lines of credit to corporate customers, to which liquidity costs and a margin representing additional risk will be added. On committed lines it is usual for fees to be paid on the unutilised commitment.


===Short-term borrowing===
===Short-term borrowing===

Latest revision as of 23:01, 19 October 2022


KEY COUNTRY FACTS
Flag of the United Kingdom
System of government: constitutional monarchy
Population: 63.74 (July 2014 estimate)
Currency: pound sterling (£)
FX regime: free float
GDP: $2,848bn (2014 est)
IGTA member: yes
FATF member: yes
Treasury association: Association of Corporate Treasurers
Other professional financial/banking associations:

UK Finance,

Chartered Institute of Bankers, Association for Financial Markets in Europe

Financial regulatory framework

On 1 April 2013, the regulation of financial services in the UK changed: the Financial Services Authority (FSA) was abolished and the majority of its functions were transferred to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). The Bank of England (BoE) also took over the FSA’s responsibilities for financial market infrastructures and the independent Financial Policy Committee (FPC) was established. These reforms took place under the Financial Services Act 2012 and are the first step in transitioning to a judgement-based approach to supervision in the UK.

The new regulators

Financial Conduct Authority

The FCA is responsible for promoting effective competition, ensuring that relevant markets function well, and for regulating the conduct of all financial services firms. This includes acting to prevent market abuse and ensuring that consumers get a fair deal from financial firms. The FCA operates the prudential regulation of those financial services firms not supervised by the PRA, such as asset managers and independent financial advisers.

Prudential Regulation Authority

Responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms, the PRA regulates around 1,700 financial firms in total. The PRA’s role is defined in terms of two statutory objectives: firstly, to promote the safety and soundness of the firms that it regulates, and secondly, to contribute to the securing of an appropriate degree of protection for policyholders (aimed specifically at insurers). The PRA works alongside the FCA creating a so-called “twin peaks” regulatory structure in the UK.

Financial Policy Committee

The FPC is charged with macro-prudential regulation and therefore has a primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The FPC also has a secondary objective, which is to support the economic policy of the government. Unlike the FCA and the PRA, the FPC does not have direct regulatory responsibility for any particular types of firm, but rather for the overall financial system.

UK Financial Investments

UK Financial Investments is responsible for managing government investments in recipient banks, e.g. government shareholdings in Royal Bank of Scotland and Lloyds Banking Group, and government shareholdings and loans in UK Asset Resolution (UKAR).



EMIR derivatives reform

The European Market Infrastructure Regulation (EMIR) came into force on 16 August 2012 across all European Union (EU) states, and is a comprehensive reform of the OTC derivatives markets. The regulation empowered the European Securities and Markets Authority (ESMA) to determine the final technical standards which came into force during 2013 and 2014. EMIR obligations vary according to the type of entity, as EMIR distinguishes between financial counterparties (FCs) and non-financial counterparties (NFCs). What this means in practical terms is that the vast majority of non-financial counterparties will benefit from certain exemptions from major parts of EMIR.

EMIR applies to:

  • Entities that are established in the EU and entering into OTC derivative contracts.
  • Non-EU counterparties entering into contracts with EU counterparties.
  • OTC derivative contracts between non-EU counterparties (where certain conditions are met).
  • The UK post-Brexit.

Key obligations

EMIR introduces four key obligations:

  • Clearing of OTC derivative contracts by a recognised Clearing House, unless the counterparty has an exemption. Note that cash FX products are exempt from this requirement.
  • Mandatory bi-lateral margining for non-clearable derivatives, unless the counterparty is exempt.
  • Reporting of all derivatives trades to a regulated Trade Repository. This applies to all counterparty types.
  • Risk mitigation techniques, including mandatory portfolio reconciliation for all counterparty types.

Counterparty types

Financial counterparties, or FCs, include financial institutions such as banks, insurers (including reinsurance and assurance), MiFID investment firms, UCITS funds, occupational pension schemes and alternative investment funds. Non-financial counterparties, or NFCs, are all of those counterparties that do not fall under the FC banner, are not CCPs, or TRs. NFCs are further classified as either NFC+ or NFC. The former is an NFC which exceeds the clearing thresholds set out under EMIR.

The NFC tests

An NFC will be exempt from clearing and mandatory margining if it can be proved that the company’s derivatives contracts meet ESMA’s “hedging for commercial purposes” definition. There are three tests and the meeting of one of these means the exemption applies:

  • The swap covers the risk arising from the normal course of business.
  • The swap covers indirect risks.
  • The swap is consistent with the IFRS hedging definition.

For contracts where none of these criteria is met, clearing will be triggered if the aggregate volume of contracts exceeds certain thresholds:

Clearing thresholds

- EUR 1 billion* Credit derivative contracts
- EUR 1 billion* Equity derivative contracts
- EUR 3 billion* Interest rate derivative contracts
- EUR 3 billion* Foreign exchange derivative contracts
- EUR 3 billion* Commodity derivative contracts and others in gross notional value

N.B. These thresholds are for an average rolling position over 30 days. Any hedging positions that are “objectively held for the purpose of directly reducing commercial risks or treasury financing activity” are exempt from this. Exceeding any single threshold will trigger mandatory clearing in all asset classes for NFCs. On this basis, corporates must attest to their local regulator as to whether they are NFC or NFC+. This classification will determine which of EMIR’s obligations will apply to the company.

Dates

At time of publication certain implementation dates are still to be determined.

Current anticipated schedule:

  • 1 September 2016: Variation requirements for non-centrally cleared trades. Mandatory bilateral margining for non-cleared trades.

The Bribery Act

The Bribery Act (the “Act”) came into force on 1 July 2011. The legislation brings together the current scattered bribery laws, which date back to 1889. The Act reforms the criminal law to provide a new, modern and comprehensive scheme for bribery offences that will enable courts and prosecutors to respond more effectively to bribery in the UK or abroad. The Act firmly places the responsibility on organisations to ensure that they have anti-corruption procedures in place. Failure to do so will result in criminal liability and unlimited fines.

The Act

The Act:

  • describes four offences to be defined as bribery;
  • replaces the fragmented and complex offences at common law and in the Prevention of Corruption Acts 1889-1916;
  • introduces an extraterritorial aspect to each of the four bribery offences by including all acts and omissions which take place within or outside the UK;
  • provides guidance and suggested procedures that commercial organisations can put in place to prevent acts of bribery being committed on their behalf;
  • provides a more effective legal framework to combat bribery in the public and private sectors; and
  • helps tackle the threat that bribery poses to economic progress and development around the world.

The four defined bribery offences are:

  • offering or giving an advantage expressed in financial or other terms to a person to perform a public function or business activity in an improper way;
  • requesting, accepting or agreeing to receive an advantage personally or through another person to perform a business activity improperly;
  • offering or giving any advantage to foreign public officials to influence them in their governance capacity; and
  • the failure by a commercial organisation to prevent a bribe being paid for or on its behalf to achieve an advantage in the conduct of business.

Organisations affected by the Act

The Act applies to all corporates carrying on business in the UK. The official Guidance published by the Government confirms that a listing on the Official List of the UK Listing Authority would not of itself mean the company will be subject to the new Act as there is a requirement that the organisation must be carrying on a business. Similarly, having a UK subsidiary will not itself mean that a parent company is carrying out business in the UK, since a subsidiary may act independently of its parent or other group companies. The court will decide whether or not any individual organisation is carrying out business in the UK within the meaning of the Act. Additionally, as part of the consultation, clarification has been sought as to which organisations and what types of activities were intended to be covered by the Act. The Government’s response has been clear – to the extent that charitable, educational and public sector entities engage in commercial activities, they come within the scope of the Act. The Act covers joint ventures and situations where a third party purports to act on behalf of another. Where the joint venture is being conducted through a contractual arrangement and an employee of another participant in the joint venture pays a bribe, it will not necessarily be assumed that the bribe was intended to gain an advantage for any party other than the participant employing that individual. A bribe executed on behalf of a subsidiary by one of its employees or agents will not automatically involve liability on the part of its parent company, or any other subsidiaries of the parent company, if it cannot be shown that the employee or agent intended to obtain or retain business or a business advantage for the parent company or other subsidiaries – even where the parent company or subsidiaries may benefit indirectly from the bribe.

"Adequate procedures"

Of special concern to businesses is the corporate offence of failing to prevent a bribe being paid, which is committed when a person associated with a commercial organisation bribes another person, with the intention of obtaining or retaining business or an advantage in the conduct of business for that organisation. A company will only be held criminally liable for the acts of an “associated person” where that person actually represents or performs services for it and the bribery committed is intended to benefit that company. It is very unlikely therefore that a company will be liable for the actions of someone who simply provides services to it. The only defence to the corporate offence of failing to prevent bribery is that the company has in place “adequate procedures” for tackling bribery. The Guidance outlines the procedures that need to be in place to be able to rely on the statutory defence. The procedures only need to be proportionate to the size and nature of the business.

The principles in the Guidance are:

  • Proportionate procedures – the procedures should be proportionate to the risks the organisation faces and to the nature, scale and complexity of the organisation’s activities. Senior management, i.e. the board of directors, owners or managers, need to demonstrate their commitment to preventing bribery and this commitment has to be communicated to persons associated with the company.
  • Risk assessment – every corporation should assess the nature and extent of the organisation’s exposure to potential bribery and take action that is proportionate to this risk.
  • Due diligence – due diligence should be undertaken to mitigate business risks. Companies may decide there is no need to conduct much in the way of due diligence on procedures and personnel in certain situations. In higher risk situations, due diligence may require conducting interrogative enquiries or general research on proposed associated persons.
  • Communication – companies should make sure that bribery prevention policies and procedures are understood throughout the organisation and where necessary provide relevant training.
  • Monitoring and review – consideration should be given to formal periodic reviews and reports need to be given to senior management. Over time, the risks to the organisation may change and these should be addressed by ongoing monitoring.

The Act and Guidance requires all businesses to have and operate clear and comprehensive anti-bribery policies. These policies need to be published internally and be overseen by a designated person. In larger organisations the Guidance suggests that this needs to be at board level i.e. demonstrating senior management’s commitment to tackle bribery related issues. Additionally, a company should hold regular and comprehensive bribery and anti-corruption training programmes. The content should be tailored for employees and be relevant to their position in the company. The Act and Guidance recognises that some employees may be vulnerable to the commission of acts of bribery. In addition to having clear anti-bribery policies in place, employers should provide clear procedures as to how allegations of bribery will be dealt with. One way of focusing minds is to inform managers of the personal liability imposed by the Act on those “consenting to” or “conniving in” the commission of offences. It is noteworthy also that the Act raises the maximum custodial sentence for an individual convicted of an offence of bribery to ten years, whilst a commercial organisation which fails to prevent bribery faces an unlimited fine.

Further information on the FCA is available via their website where the FCA Handbook showing supervisory guidelines for UK authorised persons can be accessed online. The FSMA 2000 can also be viewed on the web at www.legislation.gov.uk/ukpga/2000/8/contents

Further information on UK regulation is included in a supplementary article.

Processing of International Payments

SEPA

The Single Euro Payments Area (SEPA) is a European Commission (EC) and European Payments Council (EPC) initiative which has removed the barriers and complexity of making pan European Euro Payments, by adhering to a single set of standards. Importantly, SEPA has aligned the cost of cross-border transfers with that of domestic euro electronic transfers, resulting in significant cost reductions. SEPA is underpinned by the Payment Services Directive, which provides the legal foundation for the creation of an EU-wide single market for payments. Migration of credit transfers and direct debits to SEPA for countries within the eurozone has gradually been completed over the past year. Under the SEPA scheme the use of International Bank Account Numbers (IBANs) and Bank Identification Codes (BICs) is now mandatory for cross-border euro payments. This, together with the associated rising costs and penalties of submitting payments with incorrect BIC and IBAN data, means there is a need for cross-border validation at an early stage of the funds transfer process. Migration to BIC and IBAN can be time consuming and costly, particularly for organisations that need to update large numbers of account details. SEPA Direct Debits (SDD) was first launched in late 2009. This allows Direct Debit originators to collect pan-European Direct Debits from any of the SEPA countries using a single Direct Debit service instead of the country specific services that currently exist. SCT and SDD will eventually replace existing national payment schemes. SEPA continues to apply to the UK post-Brexit.

SEPA Direct Debit (Business to Business Scheme)

The SEPA Business to Business (B2B) Direct Debit Scheme enables business customers, as payers, to make payments by direct debit across 35 SEPA countries. The change introduced via this scheme is restricted to business customers that are not micro-enterprises. The B2B scheme offers a significantly shorter timeline for presenting direct debits and a reduced return period in situations where it is determined that the payer (a corporate client) is not entitled to obtain a refund of an authorised transaction. The system can be used for single or recurrent collections.

E-mandates

In the SDD scheme, the creditor (the merchant or service provider) requires the debtor (the purchaser) to authorise the collection of payments via its bank through a signed mandate, typically in paper form. In the standard SDD framework, the debtor bank can debit the debtor account upon request of the creditor’s bank without prior notification or approval by the debtor. To limit fraud and disputes, the European Payments Council (EPC) has defined an optional SDD e-mandate framework that requires a pre-authorisation of the payment by the debtor. A set of ISO standard messages has been developed to complete the support for direct debit transactions in the corporate space and in the inter-bank space, with electronic mandate related information to cater for the initiation, amendment and cancellation of the e-mandate. These standards have been developed in collaboration with representatives from corporates, banks, Automated Clearing Houses (ACHs) and Enterprise Resource Planning (ERP) vendors as well as industry standardisation bodies such as the European Payments Council (EPC), UN/CEFACT TBG5, European Association of Corporate Treasurers (EACT) and SWIFT. As part of their commercial offering, banks can develop additional optional services that give a clear competitive advantage:

  • Debtor banks can develop further services based on their existing e-channels so that the debtor can re-use its secure online banking services to view the pending direct debit collections with due date, acknowledge and confirm, or reject them, before interbank clearing and settlement.
  • Creditor banks can offer additional services to the merchants and service providers by verifying the mandate’s existence and validity before transmitting collections to debtor banks.

Key benefits are:

  • guaranteed payment: once authorised, the creditor is “guaranteed” that the payment collection can take place;
  • minimised disputes as the debtor has pre-authorised the payment collection through its traditional credentials;
  • less paperwork for the debtor as he does not need to print, sign and mail the paper form to the creditor;
  • reduction of administrative costs for the creditor as the mandates are de-materialised and stored at its bank;
  • enhancement of security through the use of electronic channels.

Accounting framework

Since 2005, UK companies listed on a regulated EU securities market have been required to prepare their consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Companies listed on the Alternative Investment Market (AIM) are required by the AIM listing rules to prepare IFRS financial statements. These requirements continue to apply post-Brexit. Unlisted companies in the UK prepare their financial statements in accordance with UK Generally Accepted Accounting Principles (GAAP). The UK Accounting Standards Board will move all unlisted entities (apart from very small entities and some subsidiaries of groups already reporting in accordance with IFRS) in the UK to new UK GAAP, known as FRS 102 (modelled after an international standard for small and medium-sized entities IFRS for SMEs), by the end of 2015. Alternatively, any UK company can already choose to apply full IFRS (see below).

International Financial Reporting Standards

IFRS are set by the International Accounting Standards Board (IASB) following international consultation with interested individuals and organisations – this is known as “due process”. The development of a new IFRS involves two formal consultation documents: a discussion paper and an exposure draft, both of which are open to public comment for a number of months to ensure constituents have enough time to comment. The IFRS Interpretations Committee issues guidance in the form of published Interpretations (also known by their historical name of “IFRIC”) in order to promote consistent application of IFRS in practice. All international standards in issue and all Interpretations (but not the appendices, such as Basis for Conclusions) are available on the IASB’s website (www.iasb.org). Full texts of the standards are also available either in exchange for a one-off payment, or by way of subscription. The Financial Accounting Standards Board (FASB), the standard setter in the US, and the IASB have been working together since 2002 in order to promote conversion between IFRS and US accounting standards (US GAAP). When adding an item to its agenda, the IASB considers its convergence initiatives with US GAAP and it conducts some projects jointly with FASB. However, the original deadline for convergence of accounting standards (2011) was missed. The Securities and Exchange Commission (SEC) in the US has, in effect, postponed indefinitely the project of allowing or requiring US companies to use IFRS. Since 2007, however, UK companies with a US listing known as Foreign Private Issuer (FPI) have been able to file their IFRS accounts with the SEC without including a reconciliation to US GAAP numbers. In response to the financial crisis and the demands by G20 to achieve global convergence of accounting standards, the replacement project for IAS 39 (which addresses recognition and measurement of financial assets and liabilities) was accelerated. The replacement of financial instruments standards under IFRS and US GAAP are run as separate projects and significantly different models have been proposed. Recently the IASB and FASB renewed their efforts to bring their respective future financial standards closer together at least on some practical level (e.g. by requiring disclosures that could allow users to reconcile the numbers from different accounting models). To be applicable in the UK an IFRS must be endorsed by the EU. This endorsement is a complex political process that involves various EU bodies including the European Commission, its expert advisers and the European Parliament. Historically the EU approved most new standards and interpretations within six to nine months of their publication by IASB. Recently EU endorsement of the new standards has become more difficult – for example, the adoption of phase I of IFRS 9, which addressed accounting for financial assets, was deferred in late 2009. In fact, it has been made subject to the completion of the entire IAS 39 replacement project. The original mandatory effective date for IFRS 9 Financial Instruments was 1 January 2013 and was later amended to 1 January 2015. In November 2013, the IASB published IFRS 9 Financial Instruments (2013) and decided to revisit the effective date after all phases of the IAS 39 replacement project were complete and a final version of IFRS 9 issued. The new IFRS 9 became effective from 1 January 2018.

UK GAAP

All other unlisted companies, and some subsidiaries of listed groups currently prepare accounts in accordance with UK Companies Act 2006 and UK accounting standards. UK Companies Act 2006 recognises the Financial Reporting Council (FRC) as the authority that issues accounting standards. The FRC took over that function from the Accounting Standards Board (ASB) in 2012. Accounting standards developed by the ASB are contained in financial reporting standards (FRSs) and statements of standard accounting practice (SSAPs). While some of the SSAPs have been superseded by FRSs, some remain in force (such as SSAP 20, covering foreign currency). Some industries have developed Statements of Recommended Practice (SORPs), which provide further clarification of the application of UK GAAP for those industries. The SORPs can never override the standards. Executive summaries of all UK standards in issue are available on the FRC website (www.frc.org.uk/asb). All unlisted entities must apply FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” for accounting periods starting on or after 1 January 2015, unless they elect to apply IFRS 101 or FRS 105. FRS 102 is based largely on IFRS for SMEs, which is an IFRS developed by the IASB specifically for small and medium-sized entities. It is a standalone set of reporting requirements contained in one comprehensive standard. The rationale for replacing UK GAAP (as communicated by the ASB) includes the cost of maintaining it and the complexity created by only partial convergence with IFRS.

The two main differences with full IFRS are that FRS 102:

  • contains fewer policy choices (e.g. certain transactions can only be accounted for at fair value, while full IFRS might allow either fair value or a form of amortised cost; and hedge accounting for derivative hedges is only available for vanilla instruments under very limited circumstances (note, however, that in response to lobbying, the FRC amended FRS 102 to include some of the accounting policy choices that currently exist in UK GAAP); and
  • have relatively limited disclosure requirements.

An entity applying FRS 102 may not revert to full IFRS in relation to any topic area except for financial instruments. An entity may choose to apply IAS 39 or IFRS 9 in relation to recognition and measurement of financial instruments, but without the accompanying onerous disclosure requirements. Such a choice must be applied consistently from one year to the next. It represents an important win-win position given the significant restrictions on hedge accounting contained in FRS 102. In fact, if the EU endorsement process for IFRS 9 is delayed, then unlisted UK entities would be entitled to apply IFRS 9 general hedge accounting rules (considered as a major improvement on IAS 39) before listed UK groups could. The FRC plans to issue exposure drafts amending FRS 102 in relation to hedge accounting and impairment of financial assets when IFRS 9 “Financial Instruments” is finalised. The benefits of FRS 102 include international consistency and alignment to the general principles of full IFRS. Not-for-profit entities, such as housing associations, educational institutions and charities, also known as “Public Benefit Entities”, will have to apply the new UK GAAP as well, with additional guidance covering specific reporting issues not envisaged by FRS 102. Subsidiaries of groups that prepare full EU-adopted IFRS consolidated financial statements may apply FRS 101 “Reduced Disclosure Framework” that allows them to keep full IFRS measurement principles (in line with their group reporting) with only limited additional disclosures in their individual standalone entity accounts. In addition to being included in the consolidated IFRS accounts of the parent the subsidiary falls outside EU full IFRS requirements and will not be subject to any objection from shareholders holding 5% or more of total allotted shares in the entity.

Taxation framework

Tax on corporate income

Corporation tax is payable by companies and unincorporated associations including members’ clubs and trade associations. UK resident companies are taxable on their worldwide profits. Non-UK resident companies with profits arising from business operations in the UK are also liable for corporation tax on those profits. The main rate of corporation tax for the year commencing 1 April 2015 is 20%. Until April 2015, a reduced rate applied to small companies (generally, companies whose profits do not exceed £300,000) and companies with profits between £300,000 and £1.5m were charged at the full rate but could claim marginal relief to reduce the effective rate to between the main rate and the small companies’ rate. By merging the small companies’ rate and the main rate of corporation tax at 20%, the UK has removed the need for marginal relief calculations. In calculating taxable profits, trading losses may generally be offset against future profits from the same trade (with no time limit on carry forward) or against other profits of the same accounting period or previous year. Companies in a group are taxed separately but the losses of a member of the group of companies may be set against the current period profits only of other group members where certain conditions are met.

Capital gains

Capital gains are taxed at the same rate as income. However, they are reduced by an indexation allowance to take into account inflation. Capital losses may be set against gains of the same accounting period or carried forward and set against future gains. It is also possible to set capital losses against capital gains of other group members where certain conditions are met.

Dividends

The UK does not impose any withholding tax on dividends paid. Dividends received by UK resident companies are chargeable to corporation tax but this is subject to broad exemptions, in particular dividends from holdings of less than 10% of the ordinary share capital, dividends where the recipient controls the payer, and dividends on non-redeemable ordinary shares.

Profits of an overseas permanent establishment (branch)

For accounting periods beginning after 19 July 2011, a UK company can, provided certain criteria are met, elect that the profits derived by overseas permanent establishments are exempt from UK corporation tax. Following such an election, the profits derived by the overseas permanent establishment should then be exempt from UK corporation tax, subject to certain transitional provisions. Where a UK company chooses not to elect to apply the exemption, the profits of the permanent establishments would be subject to UK corporation tax. Credit for all or part of the overseas taxes paid would be given against the UK tax liability. The latter mechanism for taxing the profits of overseas permanent establishments also applies for accounting periods beginning before 19 July 2011.

Withholding taxes

Payments of interest are potentially subject to withholding tax (at the basic rate of income tax – 20%) when paid to individuals, non-UK resident companies and certain other types of entity. On 1 October 2013 the obligation to withhold tax was extended to interest paid in respect of compensation payments. However, it is possible to eliminate or reduce this withholding tax under the terms of a double-tax treaty. There is an exemption for any payments of interest on a quoted Eurobond, being any security issued by a company and the security is listed on a recognised stock exchange and carrying a right to interest. There is also an exemption for interest paid by banks in the ordinary course of their business. Royalty payments may also fall within the scope of UK withholding taxes at the basic rate of income tax (20%), again subject to provisions of relevant double tax treaties.

Transfer pricing

Companies are required to prepare their corporation tax returns on arm’s length principles in accordance with OECD guidelines. Where arm’s length pricing is not applied to cross border transactions with related parties and a UK corporate taxpayer is advantaged as a result, appropriate adjustments must be made in the corporation tax return of the advantaged UK corporate taxpayer to reflect the arm’s length price.

Tax relief for interest

Tax relief is generally available for interest expense where the reason for entering into the loan is for business or commercial purposes of a company. However, there are multiple layers of tax rules designed to restrict tax relief on interest paid to related parties. The thin capitalisation rules apply to restrict tax deductions on interest where a company is disproportionately funded by debt or guarantees from a related party, rather than equity. The transfer pricing rules (see above) can also apply to financing costs incurred on related party debt. These rules seek to ensure that financing costs are deductible for tax only to the extent they reflect an arm’s length price for the debt provided. In addition, for multi-jurisdictional groups, the worldwide debt cap legislation prevents UK tax relief on financing costs exceeding the group’s external worldwide financing costs.

Controlled foreign companies

UK resident companies that hold a 25% or greater interest in a non-resident company may be taxed on their share of certain profits (excluding capital gains) of the non-resident company. This legislation currently applies where the non-resident is controlled by persons resident in the UK. Such companies are called Controlled Foreign Companies (“CFCs”). Where the legislation applies, the CFC’s profits may be subject to UK taxation unless one of the entity level exemptions included in the legislation applies. A significant reform of the CFC rules was enacted in the Finance Act 2012 applying the new rules to non-resident companies for accounting periods beginning on or after 1 January 2013. The Government’s intention is to deliver a new regime that is competitive for business while providing adequate protection to the UK tax base. The legislation makes significant changes in policy including a move to an “all exempt for UK tax purposes unless specifically included” approach rather than the previous “all included for UK tax purposes unless specifically exempt”. As well as some changes to the current entity level exemptions, the new rules also contain “gateways” and “safe harbours” which aim to target more specifically profits that the Government considers are at risk of diversion from the UK. Where the tax on profits payable in the country of a CFC’s residence is at least three-quarters of the tax that would have been payable if the CFC had been a UK tax resident, then generally no UK tax should arise.

Indirect taxes

Anyone carrying on a business with a taxable turnover of more than £82,000 per annum (from 1 April 2015) is liable to charge value added tax (VAT) on supplies of goods or services that it makes. Certain business activities are exempt from charging VAT, including insurance, certain financial services and certain transactions in land and property. The standard rate of VAT (since 4 January 2011) is 20%. A reduced rate of 5% applies to certain items such as fuel. This rate is not due to change. At the end of each tax period (usually three months), the business must make a return of VAT and pay the excess of the VAT it has charged over the VAT it has paid on goods and services it purchased. Businesses which expect the VAT paid on their expenditure regularly to exceed the tax they collect on income may choose to make returns monthly and so obtain earlier repayments. Traders that make a mixture of both taxable and exempt supplies, such as banks and insurance companies, are only able to recover tax incurred on expenditure to the extent it is attributable to taxable supplies. Traders that only make exempt supplies are unable to recover any tax incurred on expenditure to the extent it is attributable to taxable supplies. Traders that only make exempt supplies are unable to recover any tax incurred on expenditure.

The above information has been prepared for general guidance only and does not constitute professional advice and should not replace professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained above.

For more data on VAT, visit HM Revenue & Customs at www.hmrc.gov.uk

Banking service provision

In May 2015, there were 155 banks incorporated in the UK, 104 UK branch authorised European institutions (73 with UK deposit taking authority) and 82 UK branch authorised and deposit taking banks from other countries. A list of UK regulated institutions is published monthly by the PRA Britain’s commercial banking sector is larger than those of any EU member state, holding assets of over £5 trillion, with around 50% of total assets held by foreign banks. UK banking sector assets are the fourth largest in the world after China, US and Japan. The UK is also the world’s largest centre for cross-border bank lending, accounting for around a fifth of the world total. The UK's financial services industry contributes around 10% to the total UK GDP.

Clearing and payment systems

During the past 20 years we have seen massive changes in the methods used by both businesses and individuals to process, manage, access and spend funds. Interestingly, the expected rise of a cashless society has been slower than anticipated, impacted by a range of economic and social factors, whereas other methods have accelerated more quickly, such as the rapid take-up of Faster Payments and the decline of the cheque. With regards to the most recent trends of increased use, these have been within the clearing and payment systems along with cash and bank account management.

Cash

Cash remains the largest payment method in the UK, making up 48% of all payments in 2014, and of these, around 1% were business transactions. Longer-term trends indicate the steady decline of cash transactions. In 2014, there were more payments made by non-cash methods than by cash for the very first time; largely due to the impact and pace of the acceptance of non-cash payment, including contactless cards, prepaid card payments and the advent of new technology.

Cheques

Cheque payment volumes have been declining for a number of years. In 2014, volumes fell by 12%, continuing the trend. However, the use of cheques remains an important means of payment in specific areas, for example charities and clubs. Approximately 64% of businesses in the UK still make payments via cheque. With the wide availability of electronic payment methods however, the migration from cheque payments to electronic payments is expected to continue.

Direct Debit

Direct Debit is an increasingly popular payment method. Over 3.5 billion Direct Debit payments are processed by Bacs a year and 75% of adults now have at least one Direct Debit commitment Direct Debits are used for more than two in three of all personal regular bills.

Bacs Direct Credit

Bacs Direct Credit is a preferred method of receiving payments. This has been driven by the way businesses now want to pay suppliers and employees, as well as by government moves to ensure that all state benefits are automated. Bacs Direct Credit is used to pay 90% of full and part-time employees, 99% of private pensions and 99% of state benefits and pensions. Standing orders remain a popular choice for regular commitments, although with the implementation of the Payment Services Regulation nearly all of these have migrated to the Faster Payments service.

Debit cards

The number of debit card payments is forecast to grow substantially, and total spending on them to increase significantly.

Credit cards

Between 1999 and 2009, consumer spending on credit cards increased by 74%, and, in recent years, credit card spending and borrowing has fallen in real terms, with 59% of consumers settling their bills in full each month, whilst taking advantage of the enhanced consumer protection that credit cards offer. In the Corporate and Commercial Card arena, annual UK spend is estimated at £26bn per year, with the market forecast to grow by 7-10% per annum.

Prepaid cards

As well as replacing traditional gifting services with pre- loaded gift cards, the use of prepaid cards has increased to meet the needs of those consumers wishing to use and access online products and services, who have no access to either debit or credit card services. Prepaid cards are also attractive in the B2B market in view of the added flexibility, convenience and control that they offer in comparison to other payment methods, eg petty cash.

Automated Teller Machines (ATMs)

By the end of 2013 there were 67,963 cash machines in the UK, a 3.3% increase on 2012. The number of machines with a credit transfer function fell in 2013 to 8,307. In 2013 88% of cash was withdrawn from accounts using cash machines, with the total value of all withdrawals from ATMs at £192bn.

UK payments industry

UK Payments Administration Ltd provides people, facilities and expertise to the UK payments industry, which consists of a number of different players within separate industry groups, responsible for a distinct aspect of money transmission activity. These include: Bacs; CHAPS; Faster Payments; Cheque and Credit Clearing Company; Belfast Bankers' Clearing Company Limited (BBCCL); Dedicated Card and Payment Crime Unit (DCPCU); SWIFT UK; and UK Finance.

The main organisations active in the payment clearing system are:

  • Bacs Payment Schemes Ltd – Bacs is the not-for-profit organisation behind the clearing and settlement of UK automated payment methods Direct Debit and Bacs Direct Credit. The company is owned by 16 of the leading banks and building societies in the UK, Europe and the US and, in 2014, was responsible for processing 5.8 billion UK payments with a total value of £4.42 trillion.
  • CHAPS – CHAPS is one of the largest real-time gross settlement (“RTGS”) systems in the world and processes electronic, bank-to-bank, same-day value payment made within the UK in sterling. Transactions are settled between the member banks on an RTGS basis. This means that the value of individual payments is transferred between banks as they are made and provides risk-free, efficient and reliable same-day payments. In 2014 CHAPS volumes were virtually static with 36.5 million CHAPS payments totalling £67.96 trillion. With 21 members, CHAPS remains a key player in the industry. Utilised by banks themselves to move money around the financial system, CHAPS is also used regularly for business-to-business payments and by individuals buying or selling high-value items requiring a secure, urgent, same-day guaranteed payment.
  • Faster Payments – Introduced in May 2008, Faster Payments is the first payment service launched in the UK for over 20 years. The service has enabled phone, internet and standing order payments to move within seconds on a 24 * 7 * 365 basis. Since launch, volumes have continued to grow substantially – gaining an additional boost following the introduction of the D+1 execution time requirement under the Payment Services Regulations in January 2012. This resulted in a total of 1.1 billion Faster Payments being processed in 2014. The value limit for Faster Payments is £100,000 per transaction; however, individual banks and building societies will continue to set their own value limits for their corporate and consumer customers.
  • 'Cheque and Credit Clearing Company – As well as managing the cheque clearing system in the UK, which also processes bankers’ drafts, building society cheques, postal orders, warrants and government payable orders, the Cheque and Credit Clearing Company’s remit includes the management of the systems for clearing paper bank giro credits and euro-denominated cheques. With the migration to more electronic payment types, the volume of cheques being processed is reducing, with 2014 volumes being 66 million down from 2013 to 499 million items.

Payment system volumes

In 2014, the UK schemes processed:

  • 5.8 billion Bacs direct credits and debits;
  • 36.5 million CHAPS payments;
  • 499 million cheques and credits; and
  • 1.1 billion Faster Payments.

With a combined value of £73.8 trillion.

Cash and bank account management

Bank accounts

The main bank account operated by UK companies is a current account. Interest payable on balances in a current account is usually paid at a low rate and many organisations sweep surplus funds into short or longer-term deposit accounts to maximise returns on available funds. Working capital often takes the form of overdrafts on current accounts, which are usually available by arrangement, on payment of an appropriate fee and with set rates of debit interest.

Electronic banking

Only 10 years or so ago, internet banking was not mainstream. Now electronic banking services are available from all the UK clearing banks and research suggests that some 77% of UK banking customers use online or mobile banking. Systems are becoming ever more sophisticated, allowing not only a range of balance and transaction information, but permitting management of accounts across organisations and obviating the requirement for users to access a branch at all. Indeed many accounts are now simply internet only, offering value-added benefits to reflect the cost savings created. Real-time information is now standard, allowing businesses to increasingly use electronic banking to manage accounts in multiple currencies and across borders, giving treasurers a global snapshot of their organisation’s cash position at any one time. With processes to enable automatic sweeps and pooling, businesses and individuals can control funds to maximise returns. More and more, financial institutions are integrating their electronic banking services with the back-office systems of their major customers, enabling a seamless transfer of information and transactional data to make accounting functions more efficient.

M-commerce

Mobile technology continues its rapid advance, with handsets and packages becoming increasingly sophisticated. Mobile banking has taken off with every large bank offering mobile banking on multiple platforms with the range of functionality growing fast as banks continue to innovate. This has been driven by the explosion in the sales of tablets and mobile devices, which outsold laptops for the first time in 2013. As well as being able to manage accounts and authorise payments through mobile devices, there is increasing competitive and regulatory demand for mobile payments, where the mobile device plays an integral role in the payment process. Whether being able to make or receive payments, banks are innovating in order to utilise the ubiquity of mobile phones to initiate high-margin, low-value payments where the mobile device can be linked to a card or account to settle payments. Over 40 million accountholders currently have access to mobile banking services through the Paym mobile phone payment service, launched in April 2014 by the Payments Council.

Anti money laundering

Money laundering is a key focus for law enforcement agencies as its impact on funding organised crime and terrorism is highlighted. UK legislation requires regulated institutions to operate stringent “know your customer” procedures, with the penalties for non-adherence being severe. The Joint Money Laundering Steering Group is made up of the leading UK trade associations in the financial services industry. Its aim is to promulgate good practice in countering money laundering and to give practical assistance in interpreting UK money laundering regulations. This is primarily achieved by the publication of industry guidance.

Pooling and sweeping

With increasing competition and demand for sophisticated cash management services, the UK provides the full range of cash management techniques. These include:

  • National Pooling – Process by which debit balances are offset against credit balances with the net position used as the basis for calculating interest. Funds are not co-mingled, i.e. funds are retained separately by each company.
  • Sweeping or Cash Concentration – Process requiring the physical movement of funds from one account to another. Funds are co-mingled, i.e. transferred from one company to another, thus creating an inter-company loan.

Liquidity management

Market benchmarks

The weekly intervention rate is the rate at which the Bank of England is willing to transact business with the money market in negotiable instruments with short-term maturities, notably gilt repo and treasury bills. This rate determines the base rate at which banks in the UK charge for overdraft credit facilities (excluding credit margins), and reflects current UK Monetary Policy Committee policy.

Short-term borrowing

Bank overdrafts and syndicated revolving credit facilities remain a common source of short-term working capital funding in the UK market. Term loans for short to medium tenors may also be employed depending on availability of access to the public markets and as a part of the capital structure within acquisition financings. Larger companies make direct use of short-term money market borrowings. Some companies raise funds through the issue of (domestic) sterling commercial paper. However, larger UK companies commonly seek access to the US and/or Euro-commercial paper markets and swap the issue proceeds for the currency they require.

Short-term investments

Short-term instruments are usually regarded as those with original maturities of one year or less. Counterparty credit rating information is readily available from the major rating agencies, such as Moody’s, Standard & Poor’s and Fitch Ratings. The investment instruments described below are all tradable instruments and in most cases interest is paid gross.

The instruments available in the London market include:

  • commercial paper;
  • certificates of deposit;
  • medium-term notes (MTNs) and structured products;
  • floating rate notes (FRNs); and
  • stub ends of bonds, either fixed or floating – these would originally have had either a long or medium-term profile, but become short-term as the maturity date approaches.

Debt Capital Markets

The bond market has remained a preferred source of funding for European corporates as the general trend of migration from the loan to the bond market continued in 2013. Underpinned by an ongoing demand-supply imbalance, the bond market has remained more resilient than its equity counterpart and has demonstrated ongoing receptiveness to a broad cross-section of corporate issuers. Driven by the ongoing hunt for yield, bond market investors have shown increased demand for “higher beta” products, such as bonds issued by peripheral corporates; high yield bonds; and hybrid capital. Hybrids in particular have seen a resurgence of interest both from issuers and investors, due to the instrument’s unique combination of equity and debt features and its propensity to strengthen corporate balance sheets. Traditionally a mainstay of fixed rate funding (often subsequently swapped to floating rate), in 2013 the bond market staged a comeback of floating rate notes. There has also been an extension of tenors to 15yr and beyond in the Euro market as well as increased issuance of deals in sub-benchmark sizes. The primary market has remained the preferred source for investors looking to invest in bonds, while the secondary market performance has remained steady, supported by the ongoing supply/demand imbalance.

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