Parliamentary group criticises regulators for their treatment of challenger banks during Covid-19

A new report from a cross party group of MPs has slammed the UK’s regulators for not keeping the neobanks and building societies at the front of mind during the pandemic.

Having reached out to all building societies and challenger banks in the UK, the All-Party Parliamentary Group on Challenger Banks and Building Societies (APPG CBBS) asked them how the coronavirus had affected them as well as about the the the government and regulators’ response to the crisis.

Karen Bradley, chair of the APPG CBBS and MP for Staffordshire Moorlands, said, “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.”

In particular, the research suggested that neobanks and building societies were almost overlooked by the lawmakers and regulators, accusing them of keeping large institutions and new startups in mind.

For instance, while big banks staff were deemed to be essential key workers, the APPG CBBS noted that the same curtsey was not extended to smaller banks of building societies.

The report suggested that the government failed to reach out to consult challenger banks on the policies that affected them, particularly the mortgage payment holiday scheme. The APPG CBBS called for the government to make amends in the future.

A third of the people polled also slammed the government’s guidance as “incomplete and vague”. There was particular criticism of a perceived tendency from the government tendency to make snap policy announcements and expect all firms large and small to implement these instantly.

The group was especially critical of the Financial Conduct Authority (FCA), with its guidance being seen by many organisations to be so complex that they were forced to rely on their trade associations to interpret their guidance.

Additionally, several respondents said that the FCA’s 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 APPG CBBS called for the FCA to issue guidance that is specifically targeted at smaller financial institutions, saying that 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.”

The group also noted that 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.”

The news comes as Monzo revealed that it had not only suffered a 40% down round in June, but that the UK challenger bank has doubled its losses since the start of the pandemic.

Monzo’s annual post-tax loss had grown from £47.1m in 2019 to £113.8m in 2020, placing “significant doubt” over its ability to continue as a going concern as its “revenue streams have been significantly impacted by the Covid-19 pandemic and resulting macro-economic uncertainty.”

FinTech Global has previously reported that many challenger banks have been forced to take measures to protect their businesses, by introducing remote working and furloughing staff members. The research from parliamentary group put a number to these measures, saying that 33% of institutions have furloughed staff and that between 50% and 90% of their staff were now working remotely.