The UK Cards Association has appreciated the open and positive manner in which the Reviewer of the Financial Trade Associations Review and his team have approached their task. Through this response we set out the views of our Board and Members. There is not a singular, settled and definitive view, rather, through this response, we seek to provide the Review Team with the range of views expressed by our Members together with some indication of how widely each view is held. 1. Approach taken by UK Cards Board 1.1 Trade Associations (TA) are the creation of and express the will of their Members. They do not exist as a right and it is for the Members and not the Association to decide their direction, priorities and future. As such, and as we said in responding to the initial consultation, Rethinking the UK financial services trade association landscape, this debate belongs to members of trade associations, rather than incumbent trade bodies. 1.2 There has been a range of views expressed by Board Directors and other Members of the Association on the consultation proposals, and this response captures these views under thematic headings. Since there is not one common view held across the Board or its Members, this response will represent the plurality of views expressed, together with, where possible, some indication of how widely the view is held. Where we refer to a Member or a Board Member that reference is to the particular Member who submitted that observation. 1.3 Summarising responses, there has been very little unqualified support for any of the Models expressed by the consultation paper, with a range of concerns communicated. Most of these concerns related to options B, C and D, none of which enjoyed majority support. Members of the Board felt that substantial further information was still required to reach a properly considered view. This paper sets out where gaps have been identified as well as additional areas for consideration. 2. What are the characteristics which define a successful and effective TA? 2.1 Our starting point is that any decision about structures needs to be considered in the context of a discussion as to how a successful, effective and impactful Trade Association is defined and measured. 2.2 Our members have identified these as being: 2.3 Credibility: that is, the organisation has, and is perceived to have, integrity and has a reputation for trustworthiness. Further that through its interactions and operations it demonstrates good intent. Credibility is also demonstrated by the TA being recognised as having the ability to accomplish its goals in ways that build trust.
2 Finally, leading on from this that the organisation is associated with obtaining results, delivers what it promises, and stakeholders would recommend the organisation to others. 2.4 Expert, authoritative and influential: Linked to credibility and one of the ways that credibility is manifested is that any successful TA needs to be expert, authoritative and influential. One of the key attributes which Members tell us they value in a TA is that it includes the ability to understand the issues which underlie the industry they seek to represent, and has the specialist knowledge needed to develop credible evidence based policy positions. Members felt it was important for a trade association to be influential with governments and regulators on customer benefitting issues such as the Department of Business, Industry and Science Consumer White Paper, A Better Deal for Consumers: Delivering Real Help Now and Change for the Future. 2.5 Consumer focused: Members also recognised that an effective TA is one that successfully places consumers at the centre of what it does in relation to their industry sector. One member indeed argued that customer outcomes are key and, for them, nothing in these proposals would appear to improve them. This Member argued that the consolidation of TAs could indeed hinder representation for new entrants which is not good for competition and therefore not good for consumers. 2.6 Representation: Members identified a central role for a TA in responding to external audiences and successfully influencing them. The way in which an industry through its TA is able to be represented and responds to external stakeholders was acknowledged as core characteristic of a successful organisation. 2.7 Responsive to members needs: Internally to the workings of a TA, Members felt it was important that the governance and structures were developed in ways that enabled the new organisation to be responsive to members needs on issues and able to adapt and react rapidly. 2.8 Trust: Lastly, the issue of trust was seen to be essential. The effectiveness of any organisation depends largely on the relationships it holds with members and external stakeholders. Trust relationships develop over time and are held both by an organisation and individuals within it. As such there is no guarantee that such relationship can be transferred. 2.9 The general feedback from the majority of Members and other stakeholders is that the UK Cards Association compares well against these criteria. One Member argued that they support a stand-alone Card Associations in principle and think it works well in practice. So those responding wished to understand how any move to a new structure would demonstrably put Members in a better position. Looking at the criteria, members required that any new structure should be considered in the context of these criteria. They wanted it demonstrated that in the transition to any new organisation the card industry did not lose what Sir Adrian Cadbury identified as the
3 character, values, experience and traditions on which that [organisation] was founded and flourished. The section above relates to Questions 2 and 4 3. What is the fundamental purpose that brings members together in a TA? 3.1 The consultation defines the core of success for a TA as bringing together members with a strong underlying common interest. The options presented in the consultation are predicated on that common interest being common/shared membership. 3.2 At least one Board Member strongly supported this view, believing that the review has identified the underlying common interests. They argued that in many customers minds there is little difference between the different type of financial services providers, and regulators now view all institutions through the joint lenses of prudence and conduct. 3.3 However, it put to us by the majority of others that a better underlying principle to understand the core that brings companies together is members coalescing around a common mutual purpose. So for them, while common interest may be necessary it is of itself not sufficient. Rather it is the purpose or products of that industry which is a better identifier of what brings members together. These members did not recognise common membership as aligning with interest. They argued that there is greater diversity than commonality across the membership of the proposed merged TA models which would lead to a diffusion of purpose to the detriment of some potential members. 3.4 For these members the primary purpose of a TA was seen through the prism of what products their industry existed to provide rather than the more general purposes identified in the consultation document. 3.5 Related to and leading on from this several Members identified as crucial the ability to represent diverse interests. They put it to us that it is the diverse and often specialist nature of a TA that provides the basis for industry players to represent a range of different perspectives, and arguably it is the diversity of views that is the essence of overall effective TA representation. Card, consumer credit and the payment systems for cards issues, it was felt, may not get the same level of understanding or attention in lobbying within a consolidated trade association. One member argued that the voice of cards would be severely diluted in a broader association. Whatever the final outcome, this Member worries that options B, C and D would be set up to fail as activity would be stretched across too wide a membership to be effective. 3.6 It was put to us that regulators value the range of views they receive from a diverse set of stakeholders. Rather than receiving a homogenised response, seeing different
4 views and perspectives enables regulators to draw a balanced informed view on deciding whether regulatory activity is necessary and proportionate. Further small TAs, it was argued, are better able to reflect the different business models that by necessity operate across the same industry sector. 3.7 One other Board Member also made the point that it was an over-simplification to see membership as providing common interest. It was argued that there is considerable divergence within companies to which the consultation paper does not give sufficient credit. 3.8 Another Board Member suggested that some TAs such as those representing the payments industry align their interests owing to their roles along and across the payments chain. So for them their interest is intimately tied to the core product but at the same time they may well have significantly diverse, if not competing, interests in other financial services policy issues which are within the purview of more conventional associations to deal with. 3.9 There is an arguable case that the Review should give further consideration to addressing the relevant/appropriate principle which unifies members of an effective Trade Association. Without this any new TA may not be founded on a principle which accurately recognises why companies may wish to join that or any TA. The section above relates to Questions 2 and 4 4. Board members have shared with us a number of areas that need to be more fully addressed in the next stage of the TA Review. 4.1 Through our engagement with the Review Team we are aware that work is being carried out to understand in more detail the financial and other details of current TAs, with a view to ensuring that any future proposals are developed from a basis of knowledge and analysis. 4.2 However, Board Members have shared with us areas where they felt more detail will be needed if they are to be in a position to make an informed decision about the future TA set-up. They also felt that there was a relationship between, and for some of them, an issue of sequencing of the issues identified. 4.3 The areas identified by Members are: 4.4 Cost/benefit analysis 4.5 It has been suggested that any cost/benefit analysis will need to understand and reflect the proposals made in the proposed governance model. Without this any analysis would not provide sufficient detail to be of value in assisting final decision making for potential members of any new TA, or understand the impact on the
5 existing TA landscape. One Member argued strongly that they would welcome additional quantitative rigour to be able to evaluate the relative benefits of the different options. 4.6 Further, the analysis will need to understand and present for potential members a way of ascertaining what the value proposition of a new TA may be to them as individual organisations. It will need to enable individual members, for their own organisation, to carry out an internal cost/benefit analysis of the differing proposals to allow them to assess the impact on their internal costs and subsequent decisionmaking requirements. 4.7 Governance 4.8 Members of the Board observed that they needed any governance proposals to make clear how the senior Board of a consolidated structure would operate in relation to the various sub/segment Boards. One Board Member from a larger bank put it to us that if the Governance was dominated by High Street Banks and other large institutions then there was a risk that smaller members e.g. acquirers or monolines may set up their own TA thereby defeating the purpose of any proposed change. 4.9 Several members expressed concern that a new unified TA would be dominated by the big banks. As has already been stated, several members put it to us that it is the diverse and often specialist nature of a TA that provides the basis for industry players to represent a range of different perspectives, and arguably it is the diversity of views that is the essence of overall effective TA representation. They needed to recognise how that diversity of view could be protected before being in a position to understand if it was to their benefit to join a new unified TA. 4.10 Members also needed to know how any new governance structures would ensure that all issues would receive equal judgements as to what issues were important. 4.11 Additionally details would need to be provided on a Long Term Business Plan to demonstrate what an end state consolidated organisation would be set up to achieve. This would include detail on issues such as the proposed vision and purpose of the new TA. 4.12 There are imperatives without which balanced business judgements could not be formed or informed decisions taken. 4.13 Implementation impact 4.14 Members have expressed concern that they would not be in a position to agree any proposals without details as to how transition to a new organisation would be managed.
6 4.15 Some members are seeking clarification on how current TA business as usual activity would be effectively managed if co-existing with a transition programme. One member maintained that the review is very poorly timed from the perspective of the UK payments industry. They argued that the industry is facing unprecedented challenges as a result of new regulation coming from both the EU and UK, including the Payments Services Directive (PSD2), the Guidelines on the Security of Internet Payments, the Cyber Security Directive, the fourth Anti Money Laundering Directive and other initiatives. The fear was expressed that, at this time, the resources which the industry is in a position to devote to industry collaboration should be focused on addressing those challenges, rather than having to deal with a wholesale restructuring of the trade association landscape, particularly insofar as it relates to payments. This Member believes there is a high risk that pressing ahead with these changes at this time will result in the industry not dealing effectively with these challenges, to the long term detriment of the industry and its customers. 4.16 There is also a concern expressed of a potential serious risk that expertise could be lost or diluted in the consolidated entity if TA staff feel their ability to influence and deliver customer enhancements was diminished in an umbrella organisation. 4.17 Decision process 4.18 To assist in the decision as to whether to proceed understanding is requested as to whether a new organisation will be completely new or be created using a pre-existing TA (eg the BBA?) as the nucleus with other TAs being absorbed into that organisation. 4.19 Some Board Members identified that there was a need to understand the process for the various TAs, and related industry(ies), to reach agreement as to whether proceed to create a new TA or not. In discussions a range of related matters were pinpointed including how many (or percentage) of potential members would be a critical mass to move forward; would the decision be made by one company one vote, or some weighted system. It is not clear at this stage whether the Review will set out proposals for reaching agreement across the range of TAs and this detail was desired by some Members. 4.20 Behaviours 4.21 In discussion it was identified by more than one Board Member that it was the behaviours of members that was key to any organisation working. It was asked that consideration be given by the review team to identifying what the expected behaviours should be. Indeed the point was made that any TA could only be as good as its members allowed it to be, so unless this was successfully implemented there was no guarantee that a new TA would be successful. As one Member put it to us, no trade association will ever be perfect as it can ultimately only ever be a reflection of the effort put in by members and we believe the core of the problem with the
7 current system is one of industry engagement not structures, and therefore changing the structures will not address that. 4.22 Fraud 4.23 As the consultation paper identifies there are activities carried out by Trade Associations which fall outside of the orthodox core purposes of a trade association. For example the UK Cards Association works with FFA UK on card fraud and wider financial fraud prevention. It was identified by a Board Member that it is essential that the co-ordination across different types of fraud and product groupings was maintained and unfettered by competing priorities. Furthermore Board Members expressed concern that strategic oversight and a clear remit for card fraud policy was maintained in any new structures. They are strongly of the view that the prevention, disruption and prosecution of financial fraud is a matter of great interest and concern to the UK cards industry. For them FFA UK exist in a different space to TAs, rather its role is to enable industry to operationalise their collaborative need to combat fraud. The section above relates to Questions 1, 4, 5 and 6 5. Options for models 5.1 The Board of the UK Cards Association has considered whether it may be possible to express any views, giving weight to the respective options. The views received are set out below. 5.2 A strong view in favour of Option C was expressed by one Board Member. They stated that the arguments they originally supported for creating a new association remain valid. They argued that at a time of unprecedented regulatory and legislative change, the industry must ensure that it speaks with a single, strong voice. In their view one of the deficits of the current trade association landscape is fragmentation, and as such they believe that the scope of a new association should be broader, whilst keeping the main focus on retail and commercial banking. 5.3 Among the majority who have not supported Options B, C or D more than one Member, however, strongly opposed Options B, C and D. on the grounds of the level of representation which the payment industry could expect to receive under these Models, as described in the Next Steps paper. Despite the measures mentioned in the paper, they believed it would be inevitable that under any of these models the payments industry would receive a significantly inferior level of representation than is the current case and accordingly this would detrimentally impact the level of representation their companies received. 5.4 One Member accordingly preferred Model A but also suggested that the Review Team considers options and models not currently described in the paper. In particular, they believe that the payments industry (and the cards industry, as a subset of that) has fundamentally different characteristics to many, if not all, of the
8 other sectors considered in the paper which means that payments should not be included in the scope of any integrated body. This Member strongly disagreed that payments are part of the retail banking infrastructure. Accordingly, this Member believes that payments should be removed from the scope of any integrated body and should instead be approached solely through enhanced co-operation, whatever approach is taken to the other sectors of the financial services industry. 5.5 A Member who represents a monoline business felt that the new options had less for them than the original consultation paper. The old Option B, favoured by them, allowed for prudent reform where it made sense, for example merging Cards and Payments. They put it to us that all the new Options B, C and D are in effect just different versions of the super-merger, and are all variants on the old Option C. For them there was not any compelling argument for cards specialists to back these changes. This Member would support prudent reform such as the merger of Cards and Payments interests. They would also support the establishing of a single backoffice (e.g. HR, Finance, IT) across all of the various Financial Services Trade Associations. This, they believe would offer up genuine financial synergies without being dogmatic about merger for merger s sake. Moreover, as one Member pointed out, none of this would preclude the creation of associations that stood outside of any new structure and the consequent impact of that, including on policymakers and consumer advocates, needs to be considered 5.6 Beyond that Members expressed no particular support for any of the options published in the review paper, with the majority opposing Options B, C and D. The section above relates to Questions 3 6 Conclusions 6.1 The UK Cards Association has been pleased to be a part of, and fully cooperate in, the ongoing discussions on the enhancement of industry representation. As the external environment changes, there is a continuing responsibility for membership bodies to reassess their impact, workload and structures. 6.2 As this paper has set out, our Members have provided a range of views, with a number of concerns expressed and issues identified. 6.3 The UK Cards Board looks forward to ongoing engagement with the Review Team and continuing to contribute to the process initiated. We remain happy to respond to requests for further input and information. 30 September 2015