March 27th, 2013
Bold steps to relax the regulatory process, allowing new banking institutions to enter the UK market have been introduced this week by the FSA and Bank of England. The aim is to make the process to apply for a banking license far easier than is presently the case. The regulators jointly claim that the proposed alterations to regulatory legislation will help to diminish any existing pressures that new banks may face when applying.
In order to facilitate the steps required to loosen criteria, fledgling banks will require a reduced level financial liquidity and lower capital reserves than currently expected. Aspects of existing rules around capital requirements will be scrapped completely, with the need for new entrants to apply further measures in the event of uncertainty to be abolished. Any new bank will not be subject to an automatic new bank liquidity premium, as is also presently the case.
The FSA have been resolute in its plans to bring about wide spread changes to UK banking, as many within the body have alluded to poor regulatory stances having played a part in the financial collapse that lead to the UK recession. The chairman of the FSA, Adair Turner, stated: “This has been a comprehensive review and we have made some bold changes, ones that respond to the difficulties faced by applicant firms.”
Perhaps in reference to the present monopolies in place within the UK banking sector, Turner went on to say that, “We believe the changes will make a significant difference to the ease with which new firms can enter the UK banking system and, as a result, enable an increased competitive challenge to existing banks.”
Former MP Baroness Kramer, once vice-president of Citibank for Chicago, felt that the proposed plans were likely to make a substantial change to banking culture in the UK, and that the alterations should be considered a “game changer”. Kramer was noted to say: “For 100 years the regulator has rejected almost every new bank, leaving us with a banking system dominated by just four institutions, many of whom have abused that power by failing to serve the customer.”
Indeed, Baroness Kramer’s comments hark back to those made by Dave Fishwick, the entrepreneur who last year opened only the second bank to gain a retail banking license in the UK for 100 years. Fishwick made news when Channel 4 televised a series chronicling his struggles with the banking establishment and governing bodies, in a bid to get Burnley Savings and Loans up and running. He has since said: “I’m not even allowed to call what I do a “bank” because of the way the regulation works. The biggest hurdle was that, by deciding to start a community bank, I needed millions of pounds in reserve and would have had to spend more on licensing and infrastructure.”
Fishwick was also very clear on his views relating to the barriers currently in place to new banks entering the market: “Regulation should fit the size of operation you’re opening. All I needed was a 100 per cent guarantee to savers, and that’s exactly what we offer.”
It is unlikely that any change in the regulations will bring about instant widespread change to the major players in the mortgage market. However, with the recent introduction to the availability of cheaper funds to lend, financial institutions not previously recognised as mortgage lenders have begun to offer alternative options. Just recently, Investec widened their criteria to accommodate UK contractors, a step that many in the market hope will be followed by some of the more established banks.
Article by: Simon Butler, Operations Manager at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
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