OFT urges FSA to monitor whether capital rules will deter new entrants


The Office of Fair Trading says the regulator should monitor whether its capital requirement proposals will hinder new entrants coming to the mortgage market.

Last week the OFT released the findings of a review on barriers to entering the UK retail banking sec-tor, which was launched in May.

A copy of the review is being submitted to the Independent Commission on Banking which is exam-ining issues of competition and stability in the banking market.

In responses made to the OFT there were concerns that certain changes proposed by the Financial Services Authority are likely to reduce opportunities for new entrants.

Some respondents argued that changes such as banning certain products and changing the way in which providers that do not take deposits are regulated is making it harder for new entrants.

In its report, the OFT says: “Significant changes to capital requirements will be introduced over the next few years.

“It appears that new capital requirements, along with liquidity standards, could have the potential to exacerbate differences bet-ween incumbents and new entrants, for example, by imposing higher fixed costs of compliance.”

It says as the new requirements take effect, it may be appropriate for regulators to consider and monitor the impact on competition of these changes.

Industry consultant Mehrdad Yousefi says it is vital for a sustainable economy that the govern-ment, the FSA and Bank of England articulate what the future of retail banking sector will look like.

He says: “The regulator needs to determine, in conjunction with the government, whether the sector needs greater competition to safeguard consumers and what the implications are for a co-herent framework to foster new entrants to retail banking.”

Some respondents to the survey felt the authorisation process was onerous and the large amounts of documentation involved acted as a barrier to entry.

Precise Mortgages gained FSA approval recently.

Alan Cleary, managing director of Precise, says: “There is a signi-ficant focus on the stability of new entrants as the FSA doesn’t want lenders entering and creating a stink.

“You can’t turn up at the FSA with a PowerPoint demonstration and a business plan. It wants to see how it is being built up.”