A cross party group of MPs has today published a report displaying glaring gaps in the way government and regulators dealt with challenger banks and building societies during the Covid19 crisis.
The All-Party Parliamentary Group on Challenger Banks and Building Societies (APPG CBBS) conducted a survey of UK-based firms to assess the impact of the pandemic and the government and regulatory response. The survey also looked at impacts on firms and customers during lockdown.
Firms reported that regulators seemed confused about the business models of many smaller institutions and that much of the focus of government and regulators was on large firms alone.
Rt Hon Karen Bradley MP commented:
“The survey results show that challenger banks and building societies have stepped up to the challenge of supporting their customers during the coronavirus but that government and the regulators have struggled to provide guidance and support for the sector that is fit for purpose for smaller financial institutions.
“Challenger banks and building societies play a vital role in the UK, supporting both start-up businesses and vulnerable people who often have no other access to banking services. The APPG has long called for bespoke regulation and recognition within government and the regulators and this crisis lays bare why this reform is both needed and long overdue.”
The key findings from the survey include:
The Challenger Bank and Building Society sector was an afterthought:
- Challenger banks and building societies risked being overlooked by government and the regulators during the lockdown with policy being shaped with large institutions in mind and the effect on smaller institutions being overlooked.
- At no stage were Challenger Banks consulted on government policies that affected them, particularly the mortgage payment holiday scheme.
- The failure to explicitly identify staff of smaller banks and building societies as key workers led to police closing one branch and threatening to close others.
- A third of respondents described the guidance provided by government as “incomplete and vague”. There was particular criticism of government tendency to make snap policy announcements and expect all firms large and small to implement these instantly.
- A third (33%) of institutions have had to furlough staff. Most institutions now have between 50% and 90% of staff working remotely.
The Financial Conduct Authority (FCA) came in for specific criticism:
- The FCA was considered by many the worst amongst the regulatory community with many organisations forced to rely on their trade associations to interpret their guidance.
- A number of respondents noted that FCA regulatory staff did not understand how smaller firms worked. One example flagged by multiple firms was a failure to understand that lenders rates don’t simply track the Bank of England base rate.
The public reaction to the crisis:
- A number of respondents noted that borrowers took advantage of the ‘mortgage payment holiday’ scheme to improve their personal balance sheets and as a “just in case” measure. One respond estimated that as many as 70% of the holidays on their books fell into this category.
- Lenders warned that many borrowers didn’t understand that mortgage payments holidays weren’t free and would add an average of £2,500 to the average total mortgage repayment in the long-run.
- Institutions reported that instances of fraud had increased during lockdown. They are using a mixture of warnings and education to address this issue.
In light of the evidence submitted from institutions across the sector, the APPG CBBS is making the following recommendations to government:
- Despite challenger institutions and mutuals making up a growing percentage of UK market share there was no government consultation with either the challenger or mutual sector as part of their response to the Coronavirus pandemic. This must change and we call on the Treasury and other government departments to engage earlier and closer with challenger institutions on future crisis management policies and their financial services policies more generally.
- The FCA needs to issue guidance that is specifically targeted at smaller financial institutions. Its policy of seeking to regulate both small and large institutions in the same way is no longer fit for purpose in the UK’s modern, dynamic financial services sector. We call on the FCA to implement structural changes to enable it to target regulation appropriately at different areas of the market and to give institutions longer notice periods to implement new policies.
- The impact of the pandemic has been tough on all sectors of the economy but challenger banks and building societies have been particularly hard hit. Some challenger institutions have genuine concerns of the future viability of their business and we call on the Government to introduce a package of measures to help support smaller financial institutions that may struggle in the coming 12 months and beyond.
Notes to editors:
- The full APPG Report on the impact of coronavirus can be found on the group’s website at https://www.cbbsappg.org.uk/publications/. All UK challenger banks and building societies were approach for confidential off the record comment.
- The Chair of the APPG CBBS, Rt. Hon Karen Bradley MP, is available for interview about the findings of this report and the recommendations made.
- All requests for interviews and other media enquiries should be directed to the Secretariat of the APPG using the following details:
Contact – Havard Hughes – Barndoor Strategy
Tel: 07989 345820