The Banking Standards Commission wants to change banking for good. And, as you might expect from the scale of its ambition, the Commission's long-awaited report is vast in its scale and scope.
For me the highlights are not only the recital of the banking problems and their causes, but also the remarks on alternative finance models (summary extracted below).
In particular, it is great to see that the Commission has accepted industry pleas for the reform of both the regulatory framework and the perverse tax incentives that are protecting banks from competition.
No doubt there will be devil in the detail, but this report at least provides a solid basis for addressing the challenges that lie ahead.
The report must be a daunting read for the staff in the newly created financial authorities, who have barely settled behind their new desks. But change will need to be part of their day jobs if we are to see genuine innovation and competition in the retail financial market.
"57. Peer-to-peer and crowdfunding platforms have the potential to improve the UK retail banking market as both a source of competition to mainstream banks as well as an alternative to them. Furthermore, it could bring important consumer benefits by increasing the range of asset classes to which consumers have access. This access should not be restricted to high net worth individuals but, subject to consumer protections, should be available to all. The emergence of such firms could increase competition and choice for lenders, borrowers, consumers and investors. (Paragraph 350)
58. Alternative providers such as peer-to-peer lenders are soon to come under FCA regulation, as could crowdfunding platforms. The industry has asked for such regulation and believes that it will increase confidence and trust in their products and services. The FCA has little expertise in this area and the FSA's track record towards unorthodox business models was a cause for concern. Regulation of alternative providers must be appropriate and proportionate and must not create regulatory barriers to entry or growth. The industry recognises that regulation can be of benefit to it, arguing for consumer protection based on transparency. This is a lower threshold than many other parts of the industry and should be accompanied by a clear statement of the risks to consumers and their responsibilities. (Paragraph 356)
59. The Commission recommends that the Treasury examine the tax arrangements and incentives in place for peer-to-peer lenders and crowdfunding firms compared with their competitors. A level playing field between mainstream banks and investment firms and alternative providers is required. (Paragraph 359)."