Metro Bank today sets out its recommendations for legislative change in the banking sector, ahead of the Parliamentary Commission on Banking Standards’ imminent report. Metro Bank is the only high street bank to have successfully navigated the regulatory processes to launch in more than 100 years.
The Government has expressed an appetite to increase competition and strengthen governance across the banking sector, and today Metro Bank calls upon the government to review the following areas:
1. The creation of an industry standard for capital and liquidity levels, rather than differing levels for new and existing banks. Regular reviews of new bank levels to ensure that the capital and liquidity burdens on new banks are not excessive but proportionate to the actual risk being run.
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- Recent legislation announcements have made claims of changes to capital requirements but we need to see the policies that will actually change current practices. For a market to be truly competitive, each bank must be held to the same capital and liquidity standard if they are expected to take the same level of risk.
2. The creation of a new, independent payments regulator. Payment systems to be removed from a bank’s internal mechanisms and the creation of an independently run, licensed ‘plug and play’ payments platform that banks can use and fund according to volume.
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- The current system of ‘agency banking’ means that not only are existing banks able to charge discretionary fees to new banks to process their transactions, but that new banks are dependent on the service levels and IT systems of existing banks for their transactions. Transactional services should be made independent, and run by an independent payments regulator.
3. Changes to antiquated high street planning restrictions (through legal changes that will allow banks to open more easily on the high street).
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- The current Use Classes Order (1987) means that in order for a bank to open in a prime retail location, significant time and money must be spent applying for planning consent from local authorities for an A2 change. The Department for Communities and Local Government (DCLG) has recently announced a two year window for banks to open on the High Street, but this time period is far too brief and uncertain for any business that wishes to have a long term High Street presence.
4. Changes to Governmental deposit holding guidelines to encourage local authorities to focus on indicators of strength across the board when placing deposits, rather than focusing on credit ratings which new banks may not have yet achieved.
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- The DCLG provides guidelines to local authorities on where to place their investments. The current guidance emphasises primarily that for short-term sterling deposits (specified investments), local authority funds should be deposited either with Government bodies or other bodies with high credit ratings. New banks have gone through significant strength testing in order to be licensed, but may not initially have credit ratings, meaning that they miss out on significant deposits which would be used to fund lending.
Craig Donaldson, Chief Executive of Metro Bank, comments on the recommendations: “The banking market is under significant scrutiny, and now is the time for decisive action to create a market that works better for both customers and British business.
“A competitive market will only be achieved when new and existing banks face a level playing field; where it is the offering and proposition of the bank that leads to differentiation. Currently, new banks face obstacles not just to launch, but to access the same opportunities, capital requirements and deposit sources as existing banks. Our recommendations tackle this, and we look forward to the Government’s action to create a better banking system. In the meantime, we look forward to providing more detailed recommendations on all of the above.”