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OakNorth: Brexit creates opportunity to reform banking regulation

The fintech unicorn’s chief executive gave evidence at yesterday’s Treasury Select Committee.

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OakNorth has called on the Treasury to use Brexit as an opportunity for regulatory reform in banking.

Responding to the Treasury Select Committee’s inquiry on SME finance, the bank said that there should be more proportionality between challenger banks and incumbents.

The bank praised the PRA’s efforts in granting licences to ‘tens of new banks’ since 2010, but said that Brexit presents an opportunity for further change, ‘particularly in respect to capital’. Its basic argument is that the European Banking Authority’s insistence that Basel standards must be adhered to by all banks, regardless of size or whether they pose a systemic threat, is onerous and outdated.

Currently, OakNorth must use a standardised approach to its risk weighting, while larger banks use internal risk-based models.

“This means that new banks like OakNorth have to adhere to more onerous capital requirements and hold up to 10 times more capital than larger banks to write the same loan,” said the bank.

It is calling on UK regulators to allow challenger banks to use their own models, rather than the standardised model, in order to unlock more capital for SME borrwers.

Additionally, OakNorth has echoed Starling Bank’sdamning assessment of the eligibility criteria of the £425m Williams & Glyn RBS challenger bank fund. The fund is due to be split into various grants to help challengers develop their business banking propositions. But Anne Boden, CEO of Starling Bank, wrote in CityAM in April that the fund’s eligibility criteria are far too broad, which could lead to well-established banks winning awards.

OakNorth agrees, writing to the Treasury that the fund ‘won’t work if most of the capital goes to another huge, global player’. It says that the fund should be made available only to independent, non-white labelled banks with a balance sheet of no more than £50bn.

However, OakNorth argues that access to finance – not business current accounts – is the primary pain point for small businesses, and that the fund’s awards should reflect that.

Other big takeaways from its five-page response include a call for greater support for scale up businesses looking to borrow. It says the UK has a fine track record of supporting start-ups, but is less hot on buttressing scale-up firms.

Finally, OakNorth called on the Treasury to empower SMEs to compare lenders across a range of factors, rather than on price alone: “A comparison website should enable SMEs to compare a multitude of factors including price, such as speed of response, customer service, average transaction times, whether the bank offers term and revolving credit facilities, and what collateral the lender is willing to consider as security (real estate, stock, debtors, plant and machinery, alternative assets, intellectual property, etc.).”

OakNorth reached unicorn status late last year when it raised around £250m from a number of institutional investors, including Singapore’s sovereign wealth fund, GIC. It notched £10.6m in profit for 2017.

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