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Financial services trade body merger welcome but should not be rushed

FOCUS: A financial services trade body merger will provide a more cohesive and powerful voice to the industry but there is a danger that the process could be rushed and changes made without full consideration of their impact.10 Dec 2015

The five principal UK financial services trade associations are considering a merger into one body, cutting costs and improving their lobbying power. This would strengthen their voice at a time when the financial services sector is under intense scrutiny,

The merger has been recommended by former Ofcom chief executive Ed Richards and would involve the British Bankers' Association, Payments UK (formerly the Payments Council), the Council of Mortgage Lenders, the UK Cards Association and the Asset Based Finance Association merging to form one association.

UK Payments Administration and the Financial Fraud Association UK are also being considered as service partners for the association, while the Asset Based Finance Association would be included as an additional member in a second phase of the merger.

Richards was appointed in May to lead a steering committee of major UK banks and a building society, put together to conduct an independent review of the wide range of existing trade associations operating in financial services.

This is a time of significant change in the financial services industry, with persistent low levels of consumer trust, and new and diverse entrants to the industry. A continued spotlight is being shone on the operations and governance of participants in the sector following the financial crisis and the issues relating to conduct and governance that have arisen from it, so the proposals are timely.

However, an ambitious programme has been put in place asking the members of the five existing trade associations as well as UK Payments Administration Limited and the Financial Fraud Association UK to provide feedback on the proposals by the end of February 2016. The merger would then have a soft launch in May 2016 with the new association expected to be fully operational by November 2016.

There is a risk here of moving too fast. The report claims that this swift migration will mitigate risks by reducing the period when a 'high-profile breaking issue' or 'loss of focus in business-as-usual' matter could occur. But these risks, and others, could equally be mitigated with appropriate, contemplated buy-in from all interested parties. All of the issues raised by such a significant change in industry representation need to be carefully considered, especially during a period of overwhelming regulatory, market and technological change for financial services in the UK.

One impetus for the proposal was the need to improve representation of members. The loss of voice of smaller or niche associations was raised as a concern during the consultation period for the report and it is crucial that the new association achieves appropriate representation of these members through the product and service boards and specialist committees if it is to succeed. An enhanced voice in Europe is also needed, assuming the UK remains part of the EU.

The new association would be made up of members of the existing bodies, and would include a number of 'product and service' boards covering personal finance, mortgages, payments and cards, commercial finance, wealth and asset management, investment and wholesale, and asset based finance. Each board would be the principal policy-making body for its area while leading on stakeholder engagement and sector reputational issues.

A member could be represented on any relevant board, depending on its activities.

The new association has not yet been given a name, but would be created as an incorporated company limited by guarantee, completely independent of the existing trade associations.

As Richards' report states, "there is considerable overlap of membership of existing trade associations, and an underlying common interest. Integration also presents an opportunity both to address the feedback from stakeholders that there is significant room for improvement in this area and to promote both industry and the wider public interest."  

The creation of a "brand new organisation …  will enable it to establish its own style and aspirations, to be established as an organisation for the full range of potential members, and to draw on the skills and expertise of all the existing trade associations," the report said.

The report also claims that trade association fees could potentially fall by 30% due to a reduction in running costs and a subsequent reduction in member fees, based on synergies from combining functions and administration services.

The plans for a new association are a step in the right direction. However, it is important that the significance of such change is weighed carefully with the unintended consequences which can follow market changes of this degree. Appropriate migration and implementation of these proposals, if and when they proceed, should be the next focus of this initiative.

Tony Anderson is a banking specialist at Pinsent Masons, the law firm behind Out-Law.com