Challenger banks set for watchdog summit amid anger at rules

The UK's leading challenger banks are to hold a fresh round of talks with regulators as they seek an urgent end to the penal regulatory framework that they claim has stymied the growth of competition.

Sky News has learnt that lenders including Aldermore, OneSavings Bank (Stuttgart: 2OS.SG - news) , Secure Trust Bank and Shawbrook‎ will meet executives from the Bank of England on Friday to discuss the progress of efforts to ease capital requirements for smaller firms.

Sources said the summit w‎ould focus on how to extend the use of internal ratings based (IRB) models, which enable banks to calculate the amount of capital they set aside when lending to clients.

Britain's largest banks employ IRB models, but smaller rivals have been hamstrung by a lack of access to the data required to successfully apply to use them, meaning they have to adhere to a more onerous standardised approach.

Talks between the challenger banks and regulators have been taking place for well over a year, during which time many of the lenders whose shares are listed on the London stock market have seen their value hit amid - so far unfounded - post-referendum concerns about the UK economy.

Martin Stewart, a senior executive at the Prudential Regulation Authority (PRA) will lead Friday's talks, which will come on the same day that the watchdog publishes a consultation paper on aspects of its capital framework.

He is also due to speak at a British Bankers'‎ Association conference next week, at which we will publicly address concerns about the regulatory regime for challenger banks, an insider said.

Many of the lenders which have emerged since the financial crisis have been frustrated by what they perceive to be the absence of Government help to remove obstacles to their growth.

They‎ were also angered by a move by George Osborne, the former Chancellor, to bring some of the challenger banks within the net of a corporation tax surcharge slapped on the industry two years ago.

In a speech last year, Sam Woods, the PRA chief executive‎, said it would "bring forward proposals under our Pillar 2 regime which should also reduce the risk that our capital standards are overly prudent for smaller firms using the standardised approach to credit risk".

The PRA and the banks invited to Friday's meeting all declined to comment.