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Markets Regulation
Hargreaves Lansdown cool on bank licence
From the Financial Times of Tue, 14 Oct 2014 15:55:27 GMT

Hargreaves Lansdown, the UK’s biggest fund supermarket, is not pursuing a banking licence for its new cash service due to a stream of “negative”regulation governing the sector coming out of Europe.

The platform, which provides around 660,000 customers with access to investments, is set to launch cash products offering higher interest rates to attract savers within the next two years.

But Ian Gorham, chief executive, said there were no plans to apply for a banking licence as the “flavour” of regulation towards banks was “pretty negative”.

“Europe now calls the tune when it comes to financial services regulation and the European Parliament is pretty negative towards banks,” he said.

Tough requirements to hold high levels of quality capital as a safeguard are also burdensome, he noted, while the application process can be lengthy – despite recent improvements.

“We’re interested in cash services by partnering with banks or acting as a broker offering clients what choice they would like in return for better interest rates,” said Mr Gorham.

“But the future of the cash market would still be a big place for traditional banks and more innovative opportunities.”

Hargreaves is also planning to offer peer-to-peer lending as a potential part of its new cash service.

“One of the big questions for peer-to-peer is how can the borrowing be scaled up – there are plenty of lenders but it’s harder to find good quality borrowers,” he said.

“We have potential borrowers and lenders within our existing client base.”

Technology-led platforms such as Hargreaves, Mr Gorham said, are well placed to harness developments in terms of credit scoring methods.

But Mr Gorham conceded applying for a banking licence has been made easier in the past year.

Regulators have attempted to simplify the process for establishing new banks in order to foster more competition and challenge the dominance of the big high street names.

Metro Bank, which opened in 2010, was the first new bank to obtain a licence in the UK for more than 100 years. Paragon, the specialist buy-to-let lender, was also granted a licence earlier this year.

Paragon Group said at the time that it decided to launch the bank organically – instead of acquiring another group with a licence – as the process had become less onerous.

While new banks were previously required to have longer-term capital in cash at the outset, the regulator relaxed rules so that only one year’s capital is needed upfront. More capital is then required over time as the balance sheet grows.

More than 30 new banks could soon open in the UK after the City regulator said in the summer it had approved five new lenders and held initial talks with 25 others.

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