An inquiry by the All Party Parliamentary Group (APPG) for Building Societies and Financial Mutuals into promoting financial diversity said that it was “imperative” the coalition’s commitment to promote mutuals is now met with firm targets, which are currently lacking.
These include making the new regulators responsible for promoting mutuals, creating a government-backed Diversity Index of the whole financial services industry, and remutualising Northern Rock.
MP Jonathan Evans, chairman of the APPG, said: “The inquiry has exposed the difficulty mutuals have in competing in equal terms with shareholder-owned companies, due to the weight of legislative and regulative bias against the mutual model.”
The short inquiry took evidence from, amongst others, FSA chief executive Hector Sants, the Financial Secretary to the Treasury Mark Hoban and the Building Societies Association (BSA).
The inquiry uncovered the “frustration” of the mutual sector at the lack of a coherent government strategy and the belief that much more could be done.
In particular, the APPG highlighted that the legislation establishing the new regulatory bodies must include ‘promoting mutuals and fostering diversity’ within their statutory objectives – something missing from the FSA’s responsibilities.
As part of this, the inquiry recommends that an overall head of mutuals policy should be appointed at the Prudential Regulatory Authority, as well as a dedicated government minister for mutuals within the Treasury to work with various government departments.
In addition, it said a government-endorsed Diversity Index should be established across the financial industry, produced on an annual basis by the Bank of England and highlighting how it has maintained or increased diversity.
Adrian Coles, director-general at the BSA, said: “Today’s report makes an important contribution to the debate on diversity in financial services.
“A diverse financial system is better able to weather the strains of the business cycle and the government has rightly committed to a more competitive banking industry by fostering diversity. We urge them to take on board fully the recommendations of the All Party Group of MPs.”
The BSA has commissioned Oxford University to establish a diversity index, measuring factors including ownership structure, size and geography of firms across the UK mortgage, savings and current account markets.
The report will be published this winter and updated annually.
Coles said: “The independent diversity index is intended to assist the government in meeting its commitment to promoting diversity and should be of interest to all those with an interest in a healthy and robust financial services sector.”
