The FSA and the Bank of England relax bank barriers

Robyn Hall

March 26, 2013

The FSA will be replaced by the Financial Conduct Authority and the Prudential Regulation Authority on 1 April 2013. Both the FCA and PRA will need to approve new entrants, the PRA for prudential issues and the FCA for conduct.

The regulator will no longer be applying the additional requirements (known as “add-ons and scalars”) which it had previously applied to reflect the uncertainties inherent in start-ups. These requirements often resulted in capital requirements for start-ups being higher than for existing banks.

There will also be reduced liquidity requirements for all new banks as well as no automatic new bank liquidity premium.

Improvements will also be made to the existing authorisation process.

Where an applicant firm is able to deliver a complete application form with all supporting materials, the PRA and FCA will work together to complete all of the assessment and decision making within six months.

To support firms to provide a complete application, the PRA and FCA will introduce a significant level of up-front support to the firm, during the pre-application stage, including a challenge session. This approach is particularly suited to firms which have the development backing, capital and infrastructure to allow them to set the bank up at speed e.g. subsidiarisation of branches or where firms are able to utilise existing IT and other infrastructure.

Some of these changes have already been implemented and the remainder will come into effect at legal cutover on 1 April 2013, when the PRA and FCA come into existence.

FSA chairman Adair Turner said: “This has been a comprehensive review and we have made some bold changes, ones that respond to the difficulties faced by applicant firms.

“We believe the changes will make a significant difference to the ease with which new firms can enter the UK banking system and, as a result, enable an increased competitive challenge to existing banks.”

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