The mis-selling scandal that has cost Britain’s banks tens of billions of pounds will drag on as regulators dig deeper into lending books, the chief executive of a challenger bank has warned.
In an interview with The Yorkshire Post, Phillip Monks of Aldermore also said there “a lack of cohesive thought” in efforts to create more competition in the UK banking sector, which is dominated by a handful of big players.
Britain’s biggest banks have paid out nearly 60 per cent of their cumulative profits since 2011 to meet the cost of customer remediation, conduct failings and fines, according to a report from accountancy firm KPMG.
The Financial Conduct Authority said the total compensation for mis-sold payment protection insurance has reached £18.8bn.
Mr Monks said the mis-selling scandal “seems to be perpetuating”. He added: “I think you need to distinguish between out-and-out corruption as in Libor rigging and Forex rigging and mis-selling where people perhaps with every good will have been trying to sell products to customers but in some cases possibly haven’t documented it well.
“In some cases undoubtedly they have been mis-sold. But I think there is probably lots and lots of areas still to come where the documentation of that sale isn’t what is expected by modern standards and that’s what worries me about the future.
“I don’t think the proof of suitability for that purchase will be there and therefore I think you are open to a potential claim of mis-selling.
“I am not going to pick on individual areas but I think the degree to which one documents transactions and relationships with clients now is far, far greater and deeper than perhaps it would have been 10 or 20 years ago.”
Yorkshire and Clydesdale banks last week revealed that the City regulator has told their owner to set aside £1.7bn in capital support to cover the cost of mis-selling products to customers.
Mr Monks said the UK public has become “somewhat immune” to the continuing fall-out. He added: “There are still horror stories but there is almost an acceptance that this is the cleansing of the past, which is quite shocking when you consider the amounts involved.”
Founded in 2009, Aldermore prides itself on being a legacy-free bank with a modern digital infrastructure and good client relationships.
Asked if the UK financial services sector is fit for purpose, Mr Monks said: “I think it is still going through a period of change.
“There is a desire to have far greater competition and I think there have been calls for the breaking up of big banks and I think there is a lack of cohesive thought as to how that should be done.
“More competition in the banking environment will be a good thing, but not in the sense of having more ‘Mini-Mes’, as I call them. Having more specialist banks like Aldermore, where they are servicing specific niches of the market and good deep relationships, that’s fundamentally what we want to see.”
Mr Monks, a former Barclays executive, launched Aldermore with support from private equity firm Anacap.
It made a rousing stock market debut in March, selling 35 per cent of the business to raise £75m in funding for growth and generating a £150m windfall for its backers.
‘They would die to be in my position’
Challenger bank Aldermore is set to update the City on first quarter trading today after strong growth in 2014.
The newly floated bank said net lending grew by 42 per cent to £4.8bn last year and it expects a similar rate of growth in 2015.
Phillip Monks, chief executive, told The Yorkshire Post: “I often joke if I walked out into the middle of the City in London spoke to most to my fellow CEOs they would die to be in the position I’m in, for firstly the growth and lack of legacy and modern digital infrastructure and the relationship that we have with our clients and that level of expertise that SMEs have almost been crying out for; the clarion call of SMEs has always been the bank doesn’t understand me.
“I think with Aldermore they are finding an organisation where the bank does understand them.
“It understands they want pace, great service and a level of expertise that goes beyond their financial statements, it’s understanding the industry and context in which they operate and that’s the sort of proposition that Aldermore delivers.”
Mr Monks added: “If you are one of the incumbent banks, you have the issues of the mis-selling scandals, which seem to be perpetuating, you have increasing regulatory demands for higher levels of capital and you have increasing concerns and costs over legacy systems that you have.”
Aldermore has 12 offices across the UK and nearly 900 staff. It employs 30 people in Yorkshire, some of whom worked at Absolute Invoice Finance, which the bank acquired from Cattles plc in late 2009.
Mr Monks worked in the North West in his previous banking career and said the cities of Liverpool, Manchester, Leeds and Newcastle have long represented a “Northern Powerhouse”.
“Like most parts of the UK economy it has taken its knocks along the way but there is a passion there... and an entrepreneurial spirit,” he added.
‘Big banks are glacial’
Fast forward a decade and Britain’s big banks will have shrunk, predicted Aldermore CEO Phillip Monks.
“They are glacial and global warming is getting them,” he said. “You then have a number of medium-sized banks which are specialist. Aldermore is one of those medium-sized banks which is specialist in the SME market, both as businesses but SMEs as individuals as well.”
He said crowdfunding has caught the public’s imagination in a benign environment but will be tested when markets harden and business fail.