As if to demonstrate the appalling way in which some quangos operate in the UK the Financial Reporting council (FRC) that regulates accountants, auditors and actuaries has concluded a deal with EY to advise on a new classification scheme for insurance contracts. Not surprisingly the decision has raised a few eyebrows. Firstly EY is one of the biggest companies that the FRC regulates raising the issue of just how close are the regulator and the regulated. Secondly surely a company whose introductory line on its website is “ restoring trust in audit and corporate governance” should have internal staff capable of carrying out this work. If they don’t then what is the point of them? The relevance to lending is quite clear. Regulators are supposed to understand the business the regulate. Lenders are supposed to understand the credit business but they don’t have to. Why because regulators have removed the risk from the personal credit space allowing the interest risk premiums to rise to level which comfortably encompass administrative and bad debt costs. This is not the way to regulate. We don’t seem to learn anything.
It is a great shame to see such an ancient institution in such dire straits but Monte dei Paschi di Siena is a living example of the hubris surrounding the Eurozone construct. Over the last six years the Italian economy has grown by a miniscule 2.1% as opposed to Germany at 6.2 per cent. The divergence is there for all to see yet they share the same currency. It is very difficult to be a successful bank in a country with an extremely weak economy especially when the major stability factor ie Germany is paranoid about inflation and will very soon want to rein in the ECB. The recapitalization has all kinds of caveats about bad debts being bought off etc but the key assumption seems to be this will work it things don’t get worse, My prediction is that they will get worse and probably a lot worse. As a sovereign risk Italy looks close to junk status Europhiles in the UK keep putting out messages that the UK is in a mess. But the UK economy grew at 6.8% during the same Covid riven period. When something looks really risky it probably is and will be priced accordingly.
On the face of it start up bank Kroo which was only formed six years ago has pulled off something quite special in being granted a full banking licence. The digital newcomer has only 23000 clients presumably pre paid credit card users but will now be allowed to do far more than some of their larger and more established competitors. Apparently their next move will be into current accounts with Overdraft facilities. I find this quite a bold move. Pre paid credit cards are not the generally the instrument of choice for the most creditworthy clients. So how does the bank of England make these decisions? I took a look at Kroo’s website which publicises the usual we’re going to change the world credentials but I suspect that at this stage of its development it is a very small and largely untested organization almost certainly loss making. If I were a much larger and more tested competitor bank I would like to know what these guys have that I haven’t. Transparency on these kind of decisions would be most welcome.
Howard Tolman is a well-known banker, technologist and entrepreneur in London, We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information. For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives. Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.