Written Statement: Community Bank of Wales – Progress Update

Each one of us relies on access to affordable money and credit. Whether it’s the family needing access to a mortgage to buy their first home; the small business needing long-term finance to grow and expand, or the individual needing help through the tough moments.

However, the reality is that it’s often those in the greatest need of affordable credit that have the most trouble in accessing it. The family living in poverty; the individual with little or no savings; those with poor credit ratings – it’s these people who often have the most difficulties finding, and then securing, credit and money on fair terms. They pay a poverty premium.

As a Welsh Government we’ve been proud, over these last few years, to step in and to support many of these individuals. Through the Development Bank of Wales we’ve been able to support the small business owner in need of patient capital they can’t get on the high street at affordable terms and we’ve supported individuals often turned away from traditional banks through our Credit Union network.

But there has always been a piece missing from the jigsaw. We’ve always been in need of something that can help tackle the alarming withdrawal of traditional banks from our High Streets and help support those individuals needing community based financial help and services.

That’s why today I am delighted to update Members on the very significant progress we’ve made to develop and to launch a new Community Bank of Wales.

The pandemic continues to have a devastating impact on our communities. In many cases it has exacerbated the fault lines already present within the UK financial system and has only heightened the serious concerns many had over whether the UK’s retail banking sector is fit for social purpose.

The work to develop a Community Bank of Wales had begun long before Covid first hit, but the last twelve months have only increased the need and urgency for such a facility.

The UK Government has recognised this too. In the March 2020 Budget it set out its intention to introduce new legislation “to protect access to cash to ensure that the UK’s cash infrastructure is sustainable in the long-term”. However, it simply hasn’t acted fast enough on its intentions - one year on and there is still no clear timetable for its introduction. The Welsh Government cannot and will not wait for a solution.

Whilst it is clear that consumers’ banking habits are changing as physical branches are utilised by fewer customers, the ongoing decline in the number of bank branches and ATMs across Wales, provides consumers with significantly less choice and results in ever increasing travel times to their nearest branch.

The 2020 Financial Lives Survey published last month by the Financial Conduct Authority (FCA) provides worrying insights on the underlying and additional impacts of Covid-19 on the challenges faced in the financial lives of people across Wales. The trends towards online and digital banking and moves towards a cashless society have been accelerated by Covid-19, particularly as consumers are directed to cashless and contactless payment methods, the latter has seen an increase from £30 to £45, and now on to £100 per transaction in less than a year.

Financial vulnerability is not universal; those who are less able or willing to adopt online and digital channels and those who are cash-reliant are fundamentally dependent on access to local bank branches. As a result of the acceleration of these changes, some groups are increasingly becoming digitally and financially excluded, a situation likely to be particularly acute in rural areas where access to banking services are an essential but increasingly rare community service. Of particular concern, as highlighted in the FCA Survey, is the challenge of access to a physical bank, building society or credit union branch by those with a long term health condition, in that of the four Nations of the UK, the results are worst for Wales.

The FCA survey built upon significant, compelling and growing evidence, including from the 2019 Senedd EIS committee report on ‘Access to Banking’, that concluded the UK retail banking system, in the round, leaves many with inadequate access to appropriate banking services, financial advice and support. Such a lack of access, puts at risk the ability of many individuals, foundational economy businesses and communities to develop resilience, especially as we emerge into post pandemic recovery.

Legislative and Regulatory competencies are a reserved matter and our capacity for intervention with the major commercial shareholder banks is limited. Nevertheless we have worked creatively to investigate establishing a Community Bank of Wales, headquartered in Wales, and based on the mutual model and principles that run so deep in our communities across Wales. Owned by its members, taking account of local community needs, preventing capital drain, maintaining access to face-to-face banking and driven by customers’ needs, rather than profit maximisation – we believe that such a Bank can and will make a positive difference in communities right across Wales.

Wales is leading the way but we have also learned from other, independent and emerging attempts to establish Regional Community Banks in other parts the UK, a small number of which are now being practically supported through the Community Savings Bank Association (CSBA).

For the past eighteen months we have supported Cambria Cydfuddiannol Limited (CCL) with the initial development of their ‘Banc Cambria’ Community Banking proposition based on the CSBA ‘bank in a box’ model. Owned by its members, it was aimed at improving access to everyday banking services for everyone in Wales, regardless of income or wealth.

CCL’s initial work concurred with the EIS Committee’s report conclusion that, whilst the rationale for community banks is convincing, there were several challenges that needed to be overcome, including costs and investment risk. It recommended that the development of a community bank should consider the impact on the credit union sector. This has been helpful support as the proposal for a bank has been explored.

CCL has been creative in its approach and has adapted its strategy to establish a relationship with an existing financial institution. It is this combined approach that has allowed us to make faster progress in moving towards a new bank facility in Wales.

The support of an existing institution brings credibility and substance to the proposition as well as added experienced and appropriately licenced competency which can accelerate the establishment of Banc Cambria. In addition, and as part of CCL’s collaborative approach within the Welsh financial ecosystem, they have worked closely with one of Wales’ credit unions, Cambrian Credit Union, to consider how partnering opportunities can be developed to practically support more financially excluded individuals and avoid duplication.

I am delighted to announce that in January, Welsh Ministers, the Wales Pension Partnership and UK Regulatory Authorities were provided with a commercial investment proposal for the establishment and roll-out of Banc Cambria.

The proposal is currently being explored and subjected to rigorous due diligence processes by Welsh Government officials and our independent external advisors. It is important that upon completion of the due diligence, and if appropriate, Government and other potential investors move ahead in unison, subject to each party’s decision-making processes and regulatory approvals.

The Welsh Government, together with the team at CCL and wider partners, all recognise the immediate and evidenced need to address the market failure in locally delivered, multichannel, bilingual and essential banking services across Wales.

This is exceptional progress, especially considered against the backdrop of the restrictions necessary due to the ongoing coronavirus pandemic.

We remain on track to establish a Community Bank of Wales during 2021.

I will provide a further update in due course.