BSA: Diversity in UK financial services is declining

The Building Societies Association has today published a report on diversity in financial services. The report demonstrates that despite initiatives by the government, the decline in the diversity of UK financial services is continuing.

Related topics:  Finance News
Rozi Jones
24th November 2014
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The report found that diversity in the savings market is at its lowest level since measurement began in 2000. A similar trend can also be seen in the mortgage market, with diversity declining 20% since its peak in 2004.

This follows last week’s launch of the manifesto for financial mutuals, which set out a series of policy proposals to help a new government to deliver real competition, greater diversity in financial services and a better deal for consumers.

The report stated that a diverse range of financial services providers is crucial for the health of the UK financial services sector, in that it delivers effective competition and ensures that the financial system is more stable and robust.

The causes of the decline include outdated legislation and a one size fits all regulatory framework leaving mutuals carrying a disproportionate burden compared to competing plcs.

The report concluded:

"Policy makers need to take urgent action to ensure that the mutual model continues to exist alongside the plc model in financial services. Failure to do so will mean competition is not as effective as it could be, and the impact on the financial system from the next crisis could be substantial."

Andrea Leadsom, Economic Secretary to the Treasury welcoming the Report, commented:

“A key part of the government’s long term economic plan is to increase competition and choice in the banking sector so that customers get a better deal. I therefore welcome this study by the Building Societies Association, and its academic partners, into diversity in financial services. This is vitally important for the delivery of good outcomes for consumers and businesses, and for the stability of the financial system.

“The government made a commitment in the Coalition Agreement to promote mutuals and foster diversity within financial services. As a result, we have implemented a programme of reforms to help level the playing field, including amending the Building Societies Act to widen the opportunities for building societies. We have also given both the Financial Conduct Authority and the Prudential Regulation Authority statutory objectives to promote competition.”

Robin Fieth, Chief Executive of the BSA commented:

“This research shows that while there has been a renewed effort by Government and a commitment from political parties to foster diversity, there is still much to do. That is why we have set out a Manifesto for Financial Mutuals, which calls on all political parties to commit to expanding regulators’ statutory competition duties to include diversity, removing barriers to mutuals raising new capital and lowering barriers to entry for new mutuals.”

“Policy makers need to take urgent action to ensure that mutuals can compete effectively alongside the plcs in financial services and deliver more choice and better outcomes for consumers. Current regulation is based on a one size fits all approach and mutuals are often disproportionately affected by rules that simply do not work outside of the plc model. Failure to address this issue will result in less effective competition, worse outcomes for consumers and a financial services sector far less resilient to future economic crises.”

Professor Christine Oughton, Head of the Department of Financial and Management Studies, SOAS University of London, and one of the research authors, said:

“The Diversity Index for financial services shows that the decline in diversity observed since 2004 continued in 2013 – the latest year for which figures are available. Given the importance of diversity for competition and the stability of the financial services sector, government and regulatory bodies should explore ways to foster diversity as a matter of some urgency.”

Co-author Professor Jonathan Michie, University of Oxford, added:

“The latest figures for the Diversity Index demonstrate the importance of monitoring the degree of corporate diversity in the economy. I trust that all the political parties will include a commitment to increasing the corporate diversity of the financial services sector in their manifestos.”

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