Confusion over lender FSA approval waiting times
The confusion arose at a Treasury Select Committee meeting this morning on competition and choice in the banking sector when Vernon Hill, vice-chairman of Metro Bank, said it had taken the bank 18 months to get FSA authorisation.
But Garnier, who was an investment banker for 13 years before being elected as MP for Wyre Forest this year, said: “I was asking Hector Sants, FSA chief executive, about this last week and I said it’s taking 18 months and he said no, that’s not correct, it takes seven months. So he was lying was he?”
Hill reiterated that it had taken Metro Bank 18 months but his colleague said he had found the FSA “positive and responsive” to deal with.
Garnier also referred to a concern raised by the Office of Fair Trading which claimed there was a “catch 22” where any new bank has to raise its capital before it can apply for its licence from the FSA.
Garnier said this meant “you’re stepping into the abyss without necessarily knowing you’ve got a landing point.”
Hill confirmed the claim saying: “That was a flaw in the approval procedure… they made us raise all the money, build all the IT systems, test the IT system and then gave us the final license. They know that’s a procedure that cannot work and I believe they’ve changed it slightly now.”
According to Hill, the FSA now gives lenders an approval letter subject to conditions and then the lender can raise its capital.
Andrea Leadsom, another member of the TSC, asked Hill whether the FSA creates any barriers to entry.
Hill said: “Of course. This is not an easy business to enter. Is the FSA a barrier? Absolutely. Should they be a barrier? Absolutely. Should they approve applications that make sense? Absolutely.”
In the period between 1 April 2010 and 30 September 2010 the FSA processed 711 complete applications for firm approval within six to 12 months of application out of 720 firms that applied, almost hitting its statutory target. Its internal target is to process 75% of applications within three months of receipt. It failed to hit this in the same period, processing just 199 out of 712 applications.
The FSA could not provide an average time period for lender approval and would not confirm how many lenders were awaiting authorisation.
Metro Bank was the first new bank to get authorisation in the UK for 150 years and last month Precise Mortgages became the first non-bank to get authorisation to make residential loans since the credit crunch hit.
But countless other would-be lenders are being stalled because they have not yet got authorisation.
Tesco Bank has been saying it plans to enter the mortgage market all year and has joined the Council of Mortgage Lenders but keeps delaying its launch because of authorisation issues.
Portillion, previously Checkmate Mortgages, was founded in October 2007 by GMAC-RFC founder Stephen Knight – it is still not authorised.
Home and Savings Bank is also waiting for approval after private equity firm Blackstone announced it was backing the lender in January this year. Peter Birch, ex-Kensington chairman, Martin Finegold, founder of Kensington and Barry Meeks, ex-managing director of HML are reportedly on board.
A separate outfit headed up by John Prust, former sales and marketing director at Lehman Brothers-owned Southern Pacific Mortgage Limited, is also tipped to be waiting for FSA approval.
The latter three lenders are all headed by people who had pivotal roles in sub-prime lending before the financial crisis. And some industry pundits say it is possible this could be a reason for delays at the FSA.
Matthew Fleming-Duffy, director of London-based Abacus Financial, said: “It sounds like the industry is trying to be more competitive which can only be a good thing for the market and the consumer.
“It’s a shame that maybe the regulator is stifling a market trying to show buds of growth, especially when consumers are being told they can’t move around and remortgage. New entrants to the market with innovative products and good service would be very welcome.”