FCA Issues Updates on Permissions Regime, Examines Banking Models

The report on strategic review of banking models explores trends in the retail banking industry, in light of changes stemming from COVID-19 pandemic, increased digitalization, and ring-fencing; the report also considers the impact of such changes on competition and overall profitability. FCA analyzes different products within the retail banking business model—namely, personal current accounts, mortgages, consumer credit, and products for small and medium enterprises (SME products). FCA has looked separately at the four big banks (LBG, Barclays, HSBC, and NatWest), scale challengers (Santander, Nationwide, Virgin Money UK, and TSB), mid-tier firms (Co-op, Metro, Tesco, and Sainsbury’s), digital challengers (Starling and Monzo), non-personal current account providers (Specialist lenders such as Aldermore, Shawbrook, and Close Brothers), and traditional building societies. Although firms provide varying ranges of products and services within these cohorts, FCA has based the groupings on similarities in size and product offerings and applied these groupings consistently across the report. The key findings include the following:

• Large banks are in a strong position but face increasing competition, in particular for personal current accounts.
• Low levels of consumer engagement have historically contributed to high barriers to entry and expansion. Digital challengers have rapidly gained share in the personal current account and business current account markets.
• Competition in the mortgage market has intensified, which has caused yields to come down.
• Yields on consumer credit have also fallen, particularly on unarranged overdrafts
• Large banks did proportionately more micro-business lending under the government schemes than most other banks.
• Increased competition and innovation have improved outcomes for some consumers and small businesses but others, particularly consumers with heavy branch usage or lower balances, may have had worse outcomes.

The report on the review of banking models also highlights the organizational-wide priorities where the strategic review can inform further work. The report identifies existence of significant room for further interventions to increase competition and innovation in retail banking. Some of this involves the easier sharing of consumer data in a secure and convenient environment, via open banking or open finance. FCA will be discussing the issues raised in this report with firms and consumer organizations and is requesting submissions in response to this report by March 31, 2022.

Related Links

• Press Release on Temporary Permissions Regime
• List of Waivers on Handbook Rules (XLSX)
• Notification on Review of Retail Banking Business Models
• Report on Review of Retail Banking Business Models (PDF)

Keywords: Europe, UK, Banking, Securities, Temporary Permissions Regime, Waivers and Modifications, FCA Handbook, Regtech, COVID-19, Brexit Transition, Lending, Digital Banks, SMEs, FCA