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NEWS Challengers slam CMA banking reforms
Challenger banks have rallied against the UK’s Competition and Markets Authority (CMA), labelling its final report on the retail banking sector a major missed opportunity to create a more even playing field between incumbents, challengers and FinTechs
Reporter Scott Thompson
he competition watchdog brought its two- year investigation to a close in August. Making it easier to switch personal and SME accounts is the centrepiece of its overhaul, fuelled by the roll-out of Open APIs. The CMA was addressing the fact that Britain’s four largest banks – Lloyds, RBS, HSBC and Barclays – dominate the market. As expected, it stuck to the provisional measures it outlined earlier this year and stopped short of calling for the break up of the establishment or bringing an end to ‘free’ current accounts.
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Craig Donaldson, CEO, Metro Bank, was unimpressed and called for more radical action on capital requirements. “After more than two years in the writing and costing several millions of pounds, we are astonished that the CMA’s findings do not attempt to level the playing field for new entrants and challenger banks, by recommending that the PRA looks into disproportionate capital requirements,” he commented. “These are anti-competitive and unduly support the large incumbent banks by allowing them to hold up to 10 times less capital for the same loans than challenger banks. The CMA was given a rare opportunity to support and develop competition in banking, it is disappointing that they decided not to get at the root of the problem, but rather they missed the point and tinkered around the edges.”
Meanwhile, Phillip Monks, CEO, Aldermore, expressed his disappointment at a missed opportunity to provide a real, positive economic impact, also flagging up the capital requirements challenge. “We would have liked the CMA to have gone further faster to improve genuine competition in the market, particularly around capital requirements.
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The disadvantages faced by challenger banks in respect of disproportionate capital requirements relative to the largest banks remain a major issue for banking competition,” he observed. “This issue has been recognised repeatedly by the CMA and so it is very surprising that the organisation responsible for competition is not pushing for definitive action in this key area.”
He argued that, in a post-Brexit world, the effective provision of credit to smaller businesses will be essential to the economic competitiveness of the UK. “In the last few years, it has been the challenger banks that have expanded their lending to this segment. We have been clear in our calls for the government to take a proportionate approach to the industry so that newer providers can continue to grow. With further pull-back possible in this uncertain economic environment, there is a very real danger that many SMEs will not have access to the banking services they need. SME banking is a vital part of the sector, and it needs a fair market. Challenger banks are looking for no special treatment or favours, just a one size fits all approach. This will allow normal competitive forces to apply which, over time, should lead to greater diversity across the whole of the UK banking market.”
Rishi Khosla, Co-Founder and CEO, OakNorth Bank, criticised the CMA for failing to deliver solutions to a number of the key issues it identified. The CMA should work with the Treasury and the regulators (PRA and FCA) to create a more favourable regulatory environment for new entrants, he added. “Unlike large
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