In the U.K. political system, all-party parliamentary groups (APPG) consist of multi-partisan collaborative panels that bring together members of both houses to investigate important issues from a policymaking perspective.
One of these groups, the APPG for Challenger Banks and Building Societies (the APPG), on Wednesday (Aug. 31) published findings from its inquiry into the role challenger banks and building societies could play in leveling up the U.K. economy.
Related: UK Challenger Bank Zopa Reaches £2B Deposits Mark
The report contains five recommendations for policy changes the government could make in support of the sector.
1. Time For a New Big Bang
The APPG observes that a lack of competition in the U.K. banking sector hurts the availability of lending for both consumers and small businesses, particularly outside London and the Southeast.
The group therefore calls for “a new Big Bang to break restrictive regulatory practices which enshrine the dominance and market share of the big five banks.”
It recommends that the government use the recently passed Financial Services and Markets Bill to design a regulatory landscape that “support[s] the growth and development of new building societies and regional and community-focused banks as seen in the United States.”
2. Break the Chains of Excessive Regulation
Pointing to the advantageous position big banks currently hold, the report says the burden on new entrants is excessive.
The U.K.’s regulatory standards for new banks are so stringent that when PYMNTS spoke to Andrea De Gottardo, Chief Executive at Kroo, he called the process of gaining a full banking license from the Bank of England “the hardest thing I’ve ever done in my life.”
See: Balancing Profit, Sustainability Can Woo UK Millennials, Gen Z Customers From High Street Banks
What’s more, when new banks are awarded licenses, they still face significant hurdles when it comes to scaling their business.
The APPG writes that “when it comes to the regulation of challenger banks and building societies, there seems to be a distinct lack of proportionality in the approach of regulators.”
It suggests that the government should level up the banking sector by forcing banks to offer branches to challengers before closing them, especially in areas lacking bank branches. It also recommends that some of the capital requirements for banks be removed for those headquartered or operating in deprived areas “so that it is easier to start and grow firms outside London and the Southeast.”
3. Level up the UK’s Regulatory Thresholds
The APPG report is critical of the U.K.’s current framework for ensuring banks are prepared to fail safely. It particularly targets the minimum requirement for own funds and eligible liabilities (MREL) regime which was put in place following the 2008 banking crisis.
Pointing to the 15 billion pound threshold at which point financial institutions are subject to MREL, the APPG notes that equivalent regulatory thresholds in the EU and U.S. are much higher (100 billion euros and $250 billion, respectively).
The report, therefore, argues that the U.K.’s regulatory thresholds “stifle competition in the UK but also make it internationally uncompetitive.”
4. Accelerate the Growth of FinTech
The APPG recommends that the U.K. can accelerate the growth of FinTech by pursuing two policy initiatives.
While the U.K. has been at the forefront of open banking globally, the group writes that “more needs to be done to allow open banking to offer a view of each person’s financial situation.”
As PYMNTS has reported, more and more data are being aggregated as open banking goes from strength to strength, paving the way for the “open finance” phenomenon.
Read on: Europe Gives Glimpse Into the Future of Open Finance
Furthermore, the report makes the case that the U.K.’s financial authorities should encourage investment in FinTech firms by establishing an “FSCS-style system for FinTech.”
The current Financial Services Compensation Scheme (FSCS) is the U.K.’s state-backed deposit insurance and investors’ compensation scheme that promises to pay compensation to customers of regulated financial services firms if they cannot make payment themselves.
5. Boost Financial Literacy
The APPG states that the U.K. should “level-up financial literacy in schools and universities and ensure that entrepreneurs across the UK can access advice and funding to start a business.”
To do this, the group recommends introducing financial literacy as a stand-alone curriculum item for the country’s schools, saying that “the lack of universal financial education in schools is embarrassing.”
The group pointed to economic modeling shown by GoHenry that suggested the U.K. economy would be 200 billion pounds richer by 2050 if children received financial education from an early age. GoHenry provides debit cards and a financial education app for children younger than 18.
Related: GoHenry Acquires Pixpay to Strengthen Youth Banking Outreach
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