The UK Government has confirmed a range of measures designed to help challenger banks take on the establishment, including extension of the Funding for Lending Scheme (FLS) for SMEs, the launch of a new regulatory bank startup unit, and the establishment of a high level advisory group to review banking competition.

Initially slated for expiry in January, the FLS had become a contentious issue between the Government and the host of challenger banks looking to break into the industry. The challengers wanted to see the scheme, which was launched by Chancellor George Osborne in 2012, reserved for lenders with balance sheets of less than £20bn and which were expanding their net lending to small businesses.

Announcing a two-year phased withdrawal, City Minister Harriett Baldwin says: “The Funding for Lending Scheme extension will ensure that the scheme is phased out gradually, minimising risks to the economic recovery from the withdrawal of funding support. The Funding for Lending Scheme has contributed to a substantial fall in bank funding costs since its launch in 2012.”

The move, alongside a more proportionate approach to capital strictures on challengers, has been welcomed by the movement.

Craig Iley, managing director of business banking at Durham-based Atom Bank, says: “SMEs are transforming their businesses and finding that their banks are not keeping pace. Atom is attuned to the needs of SMEs and our focus is to innovate, ensure absolute transparency and work faster than the others. We believe this announcement will level the playing field and help support the introduction and growth of new challengers like Atom”.

The Government has also announced that the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) will launch a ‘New Bank Start-up Unit’ on 20 January 2016. This unit will have a dedicated website, and will help startups through the early days of authorisation.

Finally, HM Treasury has also set up a ‘High Level Advisory Group’ that will meet on a quarterly basis with challengers to hear their concerns and provide the government with views on banking competition. The first meeting will be on 16 December.

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