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MPs demand looser challenger banking regulation

Thursday 1 September 2022 14:28 CET | News

The All-Party Parliamentary Group on Challenger Banks and Building Societies has issued a report calling for an improved regulatory model to loosen the rules challenger banks are subject to, as reported by AltFi

 

The All-Party Parliamentary Group on Challenger Banks and Building Societies has issued a report calling for an improved regulatory model to loosen the rules challenger banks are subject to, as reported by AltFi.

 

The report claims that the Financial Services & Markets Bill, whilst a ‘very welcome and overdue update’ to the UK's regulatory landscape, does not go as far as is needed to address the issues within the UK financial system. Attendees at the session who informed the report included the CEO of Penrith Building Society, the CEO of Paragon Bank, the CEO of Bank North, and the regional director of Metro Bank, AltFi says.

As the report states, the UK's major banks remain ‘insulated from the forces of market competition’, despite the increase in licensing of new institutions in recent years. The report claims the regulatory system and the ‘dominant market power’ of the established banks are stifling Government attempts to rebalance the UK's economy, according to AltFi. 

The report suggests that the government should demand that banks offer branches to challenger banks before closing them, as well as offer financial incentives for challengers to take over branches and open new ones, especially where there are no other bank branches currently. The news comes as banks all across the UK have shuttered their doors in 2022, around 226 banks are set to shut down by the end of this year according to data from cash machine network Link, which would take the total number of closures to 325, AltFi reports.

The report goes on to argue that the capital rules which govern expanding and starting new institutions should be removed for firms headquartered or operating in ‘levelling up’ areas so that it is easier to start and grow firms outside London and the South East. The report also called for rules governing minimum requirements for own funds and eligible liabilities (MREL) to be re-written to make the UK and its regions more competitive places to operate financial institutions, AltFi continued. 

These rules, introduced in 2016, were intended to protect smaller financial institutions and their customers in the event of their failure, but the report argues that these minimum capital requirements be brought in line with jurisdictions with higher thresholds such as the EU and the United States. The report also argued for a Financial Services Compensation Scheme (FSCS) style provision for fintechs, that would enable consumers' deposits to be protected even if they are not eligible for protection under the existing FSCS model, according to AltFi.

In addition, the report called for financial education to become a stand-alone curriculum item at the Primary and Secondary School level, calling the current state of financial education in the UK ‘embarrassing’. The report said this could include more education on the opportunities available in the financial services sector, and that it could be delivered in partnership with banks and available in regions where financial services aren't as dominant of an industry.

According to the Chair of the Challenger Banks and Building Societies APPG, the cost-of-living crisis emphasises the importance of ‘levelling up’ and that ‘financial services providers can play a big role’, however she believes that ‘overly cautious regulation is holding them back’, AltFi concluded.


More: Link


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Keywords: regulation, challenger bank
Categories: Banking & Fintech
Companies:
Countries: United Kingdom
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Banking & Fintech