View more on these topics

KPMG: Regulation threat to challenger bank growth

TSB store front 700 x 450

Challenger banks’ growth could be hamstrung by disproportionate regulatory pressure, according to a new KPMG report.

The report, written by Warren Mead, says regulation tends to favour larger banks over smaller challengers.

It says: “A potential inhibitor to challenger growth is a regulatory regime that in some respects tends to favour incumbent banks over the emerging challengers.

“This is particularly true with regard to the regulatory capital regime. In theory the rules apply equally to all banks, in praxis however, they don’t.

“Challengers have to hold more capital in comparison to the big banks. The reason for this is perceived risk. By definition, a challenger is new to the market and consequently lacks the trading record and evidential data that an incumbent can offer the regulator.”

This leads to challenger banks being seen as being branded with a higher risk rating and a larger capital requirement as a result, according to KPMG.

For challengers to thrive in the mass market, regulation must change, says KPMG.

It says: “To attain the ‘advanced’ model rather than ‘standard’ designation requires access to data that few challengers have, as well as a huge commitment of time and money.

“That doesn’t mean they are riskier propositions. In fact, given their focus and simpler business models they may well be less risky.

“However, when the regulator applies the same tests across the board the new generation of institutions are placed at a disadvantage.”

KPMG says one solution is to apply the same regulatory standards to all banks but to allow challengers to give an average of the weightings that are applied to the major institutions.

Recommended

Fidelity: The pensions challenge faced by employers

We welcomed the launch of the Lifetime Isa, not least because of the generous tax benefits it offers, especially to those on lower earnings. These tax benefits are better than those available on pensions for many people, which raises the question of whether the Lifetime Isa should replace pensions as the preferred way of saving […]

6

MPs challenge Govt on cost of Waspi early state pension take-up

Influential MPs predict the cost to the Government of allowing a group of women early access to the state pension would be minimal. Only a third of women eligible for support under the proposal would be likely to do so, according to Conservative MP Craig MacKinlay. The Work and Pensions committee is conducting an investigation […]

6

Govt banks £350m in lifetime allowance charges

The Government has collected £353m in tax charges paid by people breaking the lifetime allowance limit, leading to renewed calls to scrap the penalty. A freedom of information request submitted to HMRC by AJ Bell, and seen by Money Marketing, reveals £352,888,336 has been paid between 2006/7 and 2014/15. The annual take from the measure […]

Protecting long-term savings from short-term policy

By Jamie Clark, Business Development Manager The pensions revolution is almost upon us. As with any revolution, there will be winners and losers. The winners in this case could presumably be the politicians that orchestrated pensions freedom and choice just before the general election. As for the losers, there may be many thousands of people […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment