Banks and the UK government are currently in disagreement over a proposed scheme aimed at making use of funds from frozen accounts associated with suspected criminal activity to combat fraud and money laundering.
As reported by the Financial Times, the proposed “suspended accounts scheme”, to be introduced as part of the Criminal Justice Bill, would enable banks to transfer frozen funds to the government to support its efforts against economic crime.
While banks have long advocated for a method to release these funds, they argue that the current proposals would unfairly burden them with ongoing liability even after transferring the funds, as the risks relating to the suspended accounts would still remain on their balance sheets.
Research conducted by industry body UK Finance indicates that approximately £220mn is presently frozen in suspended accounts, with an additional £30-40mn being added annually.
“At present, the proposals for the release of these funds do not come with a proportionate level of risk transfer, due to issues with liability and accounting treatment,” Aminah Samad, director of financial crime at UK Finance, told the FT.
The proposed scheme, voluntary for lenders, would cover accounts suspended for at least seven years where the owner has not come forward. The government plans to reimburse banks if customers later claim funds, but banks find these measures inadequate.
The UK government has said it would “continue to work closely with the financial sector and technical accounting experts” on the details. Alex Norris, Labour’s shadow Home Office minister, supports the scheme’s principle but has voiced criticism of the government for not securing support from financial institutions. The Criminal Justice Bill is currently being discussed in the UK parliament and much of the detail will be set out later in regulations.
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Goldman Sachs predicts that the Bank of Japan will raise interest rates for the first time since 2007 at its upcoming meeting on Tuesday, citing stronger wage outcomes and recent news articles indicating a potential move.
Goldman senior economist Tomohiro Ota said that recent developments suggest the BoJ may not need to wait until April’s Economic Outlook report to justify the policy change. In a report released by the bank today, he said the BOJ is expected to exit its yield curve controls while maintaining its current pace of bond purchases and keeping ETF holdings steady. Additionally, he expects the BoJ will likely abandon its commitment to continue increasing its monetary base.
A survey of economists by Bloomberg published last week had predicted the BoJ would end negative rates in April, but stronger wage deals announced by Japan’s largest union group has fuelled speculation of a March move. The BOJ is aiming for a sustainable 2 per cent inflation, with wage growth seen as a key factor in achieving this goal.
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The International Development Association, an institution part of the World Bank Group dedicated to aiding the world’s 75 poorest developing nations, is seeking record financing in response to a wave of sovereign debt crises and escalating costs related to climate change. In an interview with the Financial Times, the World Bank’s head of resource mobilisation Dirk Reinermann said the IDA is in need of its “largest replenishment ever”.
During its last fundraising round in 2021, the IDA secured $23.5bn from donor countries, a figure that increased to $93bn after tapping into capital market channels. Every three years, the IDA relies on wealthier nations to raise capital, as its assistance yields minimal financial returns.
According to Reinermann, a surge in demand for funding is expected to push the IDA to reach its leverage ceiling earlier than anticipated. Despite calls from some donor governments to leverage further resources, the World Bank remains cautious about risking its triple-A credit rating.
Amid political and economic uncertainties among major donors like the US, UK, Germany and Japan, analysts say the IDA must boost its lobbying efforts as it navigates increasing competition for funding, as well as increasing its support from smaller donors. Although some former recipients have become donors, analysts warn that these new sources may not suffice to meet the growing demand for IDA grants in the years ahead.
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The French central bank announced on Friday that it had made use of its risk provisions to absorb a pre-tax loss exceeding €12bn incurred in 2023, primarily due to the impact of higher interest rates.
Similar to many eurozone central banks, it grappled with losses as interest rates rose over the past two years, leading to significant interest payments on excess liquidity held by commercial banks.
The central bank stated that potential losses in the upcoming years would also be covered by its provisions and reserves. In the medium and long term, it outlined plans for increasing income from bond portfolios and loans, expecting favourable interest rate developments in the future that would facilitate a return to its profitability and the rebuilding of reserves.
