Recommendation 146

Since the ring-fencing regime and other threshold requirements do not phase in gradually, they represent a ‘cliff edge’ in which firms growing their balance sheets above a specific size are faced by an abrupt increase in their compliance burden. Richard Davies, Chief Executive Officer of Allica Bank, told us that this disincentivises growth above a certain level: “There is a range of aspects that kick in at £10 billion or £15 billion or 40,000 transactional accounts that are very relevant to this as well, which can lead a lot of firms to not want to get beyond a certain size.” 218 This constraint on firms’ appetite to expand their balance sheet beyond certain regulatory thresholds negatively impacts on the growth of these firms and entrenches the position of the largest firms. The concern that the regulators’ reliance on ‘cliff edges’ inhibits a firm’s ability to grow was echoed in a private roundtable with mid-market and specialist banks. 219 It was suggested by Charles McManus that a “sliding scale” be applied to further smooth the transition. 220