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A cross-party group of parliamentarians has called on the UK government to cut regulatory requirements for so-called challenger banks in a report on levelling up.
The UK government should use the Financial Services and Markets Bill to drive fundamental change in the country’s financial sector to make it fit for the 21st century, a bipartisan consortium of UK members of parliament (MPs) has said.
The All-Party Parliamentary Group (APPG) on challenger banks and building societies has published a report on levelling up, government for equal opportunities nationwide and how challenger banks can play a role in this.
The APPG is calling on the government to initiate another “big bang” moment for financial services, referencing the 1980s' government decision to de-regulate the financial markets, including the abolition of fixed commission charges.
“Levelling-up must move beyond merely being a slogan, especially given the current tough economic climate,” said Dan Frumkin, chief executive of Metro Bank. “If done right, channelling fresh investment, finance and opportunity will change the fortunes of whole communities.”
Challenger banks and building societies, including community banks such as Metro Bank, stand ready to play a significant role in this, he said, warning that the potential for these institutions, however, continues to be held back because rules and regulations aimed at de-risking the UK’s biggest banks actually prevent challengers from growing and shaking up banking for the better.
“I hope that this report kick-starts debate on improving these rules and opening the path to growth.”
What do MPs want?
The parliamentarians, headed by former Cabinet minister Karen Bradley, use the report to complain that “government and regulatory intransigence” make life harder for challenger banks, which could unlock opportunities for consumers.
“There is much more that they could be doing if the regulatory market in which they operate allowed them,” said Bradley. “Unfortunately, far from encouraging this, current regulation broadly makes this significantly harder.”
The report takes particular issue with the UK’s one-size-fits-all regulatory model for banks, arguing that it is not working for challengers, building societies and institutions both big and small.
“This is not being caused by the day-to-day realities of the UK economy or recent events such as COVID but a deeper structural malaise,” Bradley complains in the summary of the report.
The lawmakers have pushed for changes to the UK’s regulatory thresholds so that they match those of major international competitors such as the EU and US.
In what MPs have dismissed as “fundamentally absurd”, they have warned that thresholds are in need of a “radical revision”, calling for the UK’s Minimum Required Eligible Liabilities (MREL) to be adjusted.
“How can challenger institutions here compete with a £15bn threshold when in other jurisdictions such as the EU the threshold is €100bn and the United States $250bn?” MPs have asked. “This might make supervision easier for financial regulators, but it is permanently levelling down the rest of the UK and preventing competition in the banking sector from driving innovation and growth.”
Among its recommendations, the report also calls on the UK government to enhance and broaden the country’s open banking model, “cautioning that the flaws in the open banking model have [sic] become apparent”.
The report also suggests that with the rapid growth of fintech firms, estimated to reach a value of £12.8bn in 2023, consumers need to be able to invest with confidence. “Therefore, we would encourage the regulator to establish an FSCS [Financial Services Compensation Scheme] style system for fintech’s offering consumer access where their money is not protected by the existing FSCS model.”
