Weekend exclusive: Challenger banks stifled by excessive regulation, warns OakNorth chief
UK challenger banks are being bogged down by a need to jump through the same regulatory hoops as their larger high street rivals, the chief of digital lender OakNorth said today.
Smaller digital lenders like OakNorth, Monzo and Starling Bank sprung up in the UK in the wake of the financial crisis in 2008, as regulators looked to slacken capital requirements and overhaul the banking licence process to boost competition in the sector.
But speaking exclusively with City A.M., OakNorth founder and chief Rishi Khosla said that smaller digital lenders still suffered from overburdensome rules and having to meet the same regulatory reporting requirements as the high street stalwarts.
“Currently, the burden of regulation falls more heavily on challenger banks than on larger, systemic institutions,” he said.
“That is generally evidenced by higher capital requirements per pound of risk exposure, particularly for those banks on the standardised approach to capital.”
While smaller lenders are forced to meet higher capital requirements relative to their size, Khosla said they enjoy no flexibility when it comes to regulatory reporting.
“The systemic profile of the bank appears to make little difference to regulatory requirements and requests,” he added.
“With an ever-broadening scope of regulatory requests and requirements, it seems counterintuitive to competition to disregard the size, status, and systemic status of a bank.”
OakNorth, which posted pre-tax profits of £134.5m in its latest set of results in March, won its full banking licence in 2015 and became the third new lender in the UK in 150 years.
The UK’s City watchdogs have faced calls in the past to create a more flexible regulatory regime to boost innovation by fintech lenders, with the government-commissioned Kalifa Review of Fintech in February 2021 advising that regulation be “right-sized” according to the nature of the business.
A group of MPs also slammed the UK’s “one-size-fits-all” approach to banking rules last month and called for watch dogs to “break the chains” of regulation holding back growth in smaller banks.
“It is almost as if the UK’s regulatory authorities would prefer to deal with a few behemoths rather than a competitive panoply of diverse institutions,” the group’s chair, Tory MP Karen Bradley, wrote in a report in August.