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The ISA season is early this year

18 February 2011  |  5422 views  |  0

“…in this world nothing can be said to be certain, except death and taxes.” Said Benjamin Franklin in 1789. Still true of course but in a different measure now with increasing life expectancy on one side and a hugely increasing government tax burden on the other. And, of course, where there is tax there is tax sheltering and so we are once again at the start of the latest ISA season.

The question is, have the banks anticipated for once that there will be a peak in demand to open and transfer ISA accounts and have they taken measures accordingly? Or will the newspapers once again be filled with tales of woe and visions of back offices crammed floor to ceiling with paper and folders?

This year the ISA season is likely to be busy as people take advantage of every possible tax shelter notwithstanding the meager returns being paid for cash by the banks in this artificially low and unhealthy interest rate environment. Yet, on the horizon there is the possibility of higher rates, marginally, before too long. The government cannot continue to allow inflation steadily and surely to reduce the real value of their deficit and so the market is seeing rate rises in Q2 and beyond. For ISAs this means don’t be too early but don’t miss the 5th April deadline either. All this points to a busy time for the banks to handle both new accounts and the tricky customer requests, how easy life would be without them, to transfer their sheltered funds to another provider. http://www.telegraph.co.uk/finance/personalfinance/investing/isas/8305330/Isa-savers-missing-out-on-1300-a-year.html

If that was not enough, the rules have changed.

Following a “Super complaint” issued by the consumer body “Consumer focus” in March 2010 the OFT has changed its guidance and shortened the guideline time for a transfer from 30 to 15 working days. http://www.guardian.co.uk/money/2010/jun/29/isa-transfer-time-speeded-up That’s 3 weeks in real time plus any other bank holidays – remember Easter. So for a good month, your sheltered savings may disappear into a black hole just at the time when rates may start moving up.

But what is really interesting is the impact assessment that HMRC went through to evaluate the costs and benefits of this change. http://www.hmrc.gov.uk/ria/fifteen-day-transfers.pdf Whilst I am sure that this analysis is laudable and done for all the right reasons, I am also sure that it is incomplete and has no great significance – “There are three kinds of lies: lies, damned lies, and statistics.” – Disraeli. Looking into the detail, the assessment details “the Postal system”, three days to credit and “Cheques”. Can it be true therefore that at each stage correspondence is still sent by Royal Mail, perhaps second class, and that funds are transferred by means of a cheque? My conclusion is therefore that if ISAs had been around in the days of Disraeli, or even Benjamin Franklin, the means of handling them would have been exactly the same as it is today in 2011 when we are surrounded by faster payments, twitter, facebook and email. Astonishing.

What does it take, then, to do this properly, doing the right thing and doing things right, so that accounts and monies are transferred accurately and speedily and so the customer, remember him, knows where things are and who to contact if anything goes wrong? And let us remember that we are talking about a savings account here, there is no credit assessment or repayment schedule involved.

We need a process that identifies the customer and his balance, checks his ISA eligibility and contributions made and then transmits instructions and funds to another bank. The process and the system driving it should perform to a set of rules and policies defined by the bank and the regulators and be able to report progress and resolution to both the customer, the transmitting bank and the receiving bank. At it’s most basic this might take 24 hours to print a letterform with a cheque attached and have it in the mail. Electronically it can all be done on the same day.

For the receiving bank it is an account opening process and reconciliation of funds received. If they wish they may carry out KYC or rely on that of the transmitting bank before doing their own. Again, why should this take more than 2 days? After all, we can all open a bank account online almost instantly today. Why the big difference?

I don’t have a definitive answer but I am sure that Martin Wheatley, the incoming head of the new financial watchdog the CPMA which is rising from the ashes of the FSA, will be keeping an eye open. http://www.guardian.co.uk/business/2011/feb/02/martin-wheatley-head-cpma

Especially as the FSA has been showing its teeth with headline making fines for bad complaint handling and selling practices recently.”

TagsPost-trade & opsRetail banking

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