Craig Donaldson, Chief Executive Officer, Metro Bank, said: “This report shows a clear desire from the Commission to increase competition and strengthen governance across the banking sector. However, from our experience of setting up the first high street bank in over 100 years, we believe that although the recommendations are broad, there is still a long way to go until we see recommendations actually translated into action.
“It’s no secret that the banking sector is severely damaged. In order to rebuild it, we need firstly to increase competition, and secondly to increase trust through building consumer confidence. The Commission clearly recognises this and has made a number of recommendations that support these aims, such as equal access to the payments system; access to government deposits; account portability and ease of switching; simplification of banking products and greater financial knowledge for consumers. It is only through big, customer centric changes that we will be able to regain consumer confidence across the board.
“A truly competitive market will only be achieved when new and existing banks face a level playing field, and the Commission’s report is the first step to help the sector to achieve this. Now we urge the Government to take action and ensure change is implemented.”
Metro Bank has identified the following areas which it believes will dramatically improve the banking sector, for new entrants, existing players and customers:
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.
- Recent legislative 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, which banks can use and fund according to volume.
- 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).
- 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.
- 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.