The UK leaving the European Union could offer small finance firms the regulatory room they need to expand, according to the Bank of England.
In a speech to mark the fifth anniversary of the Prudential Regulation Authority's Secondary Competition Objective yesterday (January 17), Sam Woods, deputy governor for prudential regulation at the Bank and chief executive officer of the agency, outlined seven "awkward questions" that needed tackling about small firms.
The fifth question centred on Brexit.
Mr Woods said: "Might Brexit create opportunities to move further on proportionality for smaller firms?"
Mr Woods had already said the method of withdrawing regulatory allowances for small companies as they grow was one of these so-called awkward questions.
He said smaller firms did not need a weaker prudential regime to help them grow, "that is the last thing we need both from a safety and soundness and a competition perspective".
But he added there may be a reasonable case that a simpler – rather than weaker - regime for small firms would advance both the PRA's safety and soundness and competition objectives.
"We have often argued in Europe for simpler approaches for small firms, but the differing legal traditions across the EU27 and the desire to harmonise regulation and supervision are powerful forces in the opposite direction," said Mr Woods.
He noted that both Switzerland and the US were taking "quite radical" steps in this area.
"It is impossible to know at this stage, but under some Brexit outcomes we might have room to revisit this question for small domestic firms," said Mr Woods.
Elsewhere in his speech, Mr Woods said the PRA wanted to address why no small bank had yet grown into something with enough size to take on the dominant players and whether the Open Banking initiative would have the ground-breaking effect some expected.
Mr Woods' remarks came after the latest Heath report surveyed 249 adviser firms representing 865 advisers on the current availability and future of professional advice in the UK.
According to the survey, produced by Garry Heath, director general of adviser trade body Libertatum, the current fixed cost of regulation for a client of a financial adviser is £72 a year.
Given the number of advisers expected to retire in the next five years, Mr Heath claimed the cost could be £147 by 2022.