The FSA and the Bank of England have outlined a series of regulatory changes designed to make it easier for new banks to set up in the UK.
The changes, which came into effect today, have been the result of a review into the banking sector looking at the barriers new entrants face. The FSA – now the FCA – and BoE say the measures will ease the pressures on start-up banks, whose applications will now only take six months to assess.
Liberal Democrat peer Baroness Kramer, who is a former vice-president of Citibank in Chicago and an ex-MP, said the changes are a “game changer”.
She says: “For 100 years the regulator has rejected almost every new bank, leaving us with a banking system dominated by just four institutions, many of whom have abused that power by failing to serve the customer.”
In terms of the prudential regime, start-up banks will be subject to reduced liquidity and capital buffer requirements. The additional capital requirements, known as add-ons and scalars, which were previously applied to new entrants to reflect uncertainty are being scrapped.
Start-up banks will be required to hold a 4.5 per cent minimum Core Tier 1 capital requirements rather than the 7 per cent to 9.5 per cent requirement asked of existing banks.
All new banks will benefit from a recent reduction in liquidity requirements and there will no longer be an automatic new bank liquidity premium.
FSA chairman Adair Turner says: “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.”
Metro Bank founder and chairman Vernon Hill, whose bank was the first to gain authorisation in 100 years when it launched in 2010,says: “New entrants seek clarity of the approval process, proportionality and fairness of capital and liquidity requirements. The new FSA policy is a major improvement.”