Proposals have been published recommending the creation of a brand new trade association by integrating the remits, skills and capabilities of the Council of Mortgage Lenders, British Bankers’ Association, UK Cards Association and Payments UK.
Back in March, former Ofcom chief executive Ed Richards was appointed to review the possibility of a financial services trade body merger, and after an initial report in July, he has laid out the plans.
There are seven organisations in the scope of the final recommendation, with the Asset Based Finance Association to be integrated in a second phase.
Both the UK Payments Administration and Financial Fraud Action UK would also be ‘key partners’ for the proposed new trade association.
The Building Societies Association and Finance & Leasing Association have made it clear at this stage they do not wish to be part of the proposed integration and while respecting this view Mr Richards recommended a closer working relationship and more effective coordination.
“Our recommendation includes the creation of a brand new organisation,” read the report. “This 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.”
Across all plausible scenarios, the net present value of the project is “strongly positive”, with the report stating the net present value created for members is £32.6m over 25 years.
For the first three years and seven months, efficiency savings would be used to repay the implementation costs.
After this, the report suggests fees could potentially fall by up to 30 per cent.
Mr Richards explained the key governance feature is devolved policy leadership which enables each sector to have its own decision making board, but without reducing the overall organisation’s capacity to take an industry-wide perspective.
The report identified a number of activities which do not align with the core purposes of an effective trade association and that are currently carried out by existing trade associations.
“Our recommendation is that the new trade association would continue to perform these in the short term to avoid loss of service, but should quickly decide what type of organisation is best placed to take these forward,” it noted.
The paper also pointed out that the BBA and CML both have closed defined benefit pensions schemes. “While integration does not in any way affect existing pension liabilities, it is important that there is a clear understanding of the options available to deal with these,” stated the report, adding that buying out the existing pension schemes or ring-fencing the liabilities are presented as the credible options.
The BBA also currently has Libor-related litigation pending against it in the US and the review will take legal advice to ensure that any trade association consolidation has no effect on any potential liability.
The review received 36 responses from the full cross-section of membership and other interested parties, with a broad consensus in support of some level of integration.
However, many reiterated concerns about the risk of loss of voice for smaller members and the retention of technical expertise. Concerns were also raised about the cost to members and the continuity of service during a transition.
Mr Richards admitted that change and consolidation in any sector is never easy. “However I am confident the way forward we propose is one that would lead to the creation of a truly world-class trade association.
“It would be equipped with a stronger voice for the industry whilst also delivering an enhanced service and improved value for money for members. I believe that it is time now to move to a clear in-principle decision about the future.”
In terms of how the plans could be implemented, the report stated that all associations could adopt a similar approach of holding an initial discussion at a board meeting in December, potentially holding a special board meeting in January to discuss the recommendation in full and then making a recommendation to their membership.
The full membership could then meet in February to debate and determine their view of the recommendation.
The CML’s executive committee responded that it will now consider the proposals and in the first quarter of 2016 and members will decide by vote on whether it should become part of the proposed new structure.
“The CML’s objectives in working through the change proposal will be to ensure that any change in trade body structure would represent an improvement for mortgage lenders; that it would be effective in terms of its services to members; that it would maintain the market coverage that the CML currently has, effectively representing the very broad church of lenders of all sizes and types; and that it would be able to act and speak on behalf of a unified industry,” it stated.
peter.walker@ft.com
