Bank of England eye's 'strong and simple' rules for small lenders

By Huw Jones

LONDON (Reuters) - The Bank of England is looking at whether it could introduce a graduated system of "strong and simple" capital rules for smaller lenders and building societies, Deputy Governor Sam Woods said on Thursday.

Britain's departure from the European Union gives regulators an opportunity to better tailor rules to UK financial firms, though it would be "mad" for this to translate into weaker standards, Woods said.

The BoE began last year by introducing simpler rules for credit unions as they don't fall under EU rules.

"It is natural, therefore, as we leave the EU, to have another look at the next-smallest set of UK deposit-takers – small UK banks and building societies - and ask whether we could do something similar for them," Woods told the City of London's Mansion House.

"Moving to a fully graduated regime of this kind would be a major undertaking."

The BoE is attracted to the idea of putting a first step in place early on, rather than waiting until a whole new system is ready, he said.

Regulators are under pressure from lawmakers to boost competition in retail banking, which remains dominated by HSBC, Natwest, Lloyds and Barclays even though 25 new banks have been authorised since 2013.

The BoE could issue a discussion paper in the Spring, depending on initial feedback to his speech, Woods said.

Britain would also move to a more "hybrid" style of regulating banks, using a mix of principles and supervisory statements rather than continuing with the EU approach of having detailed rules enshrined in law, he said.

Britain's finance ministry wants regulators to consider whether their rules harm the financial sector's ability to compete globally.

Woods said people should not confuse competitiveness as code for a "weaker referee", which would not deliver a good outcome.

(Reporting by Huw Jones; Editing by David Goodman, Kirsten Donovan)