The market desperately needs more competition and this can’t happen without new entrants. But the FSA’s tough stance and delays in gaining authorisation are making this a difficult prospect
The Financial Services Authority’s authorisation process is effectively a massive correlation of data which needs several forms to be completed to get authorisation. These forms go into core details of basic data. Prospective lenders are required to provide financial forecasts for profit and loss, balance sheets and proof of capital and predicted capital balance.
They then must provide a detailed business plan considering marketing and strategy, future decisions and governance.
There are also questions about who will be in charge, what their experience is and whether they are qualified to be in control of a firm applying for authorisation.
Applicants will also have to provide a sample of all customer-facing documentation alongside its policies and procedures. It ranges from financial crime right through to operation and controls.
By the time you submit the application to the regulator it’s a weighty document.
Lenders don’t need to actually have these systems in place and can just provide a blueprint.
The most important thing is to get the application right first time to the regulator otherwise you can end up in a lengthy process.
The FSA application fee is £1,500 but the majority of applicants will have a consultancy firm to advise them particularly if they have not been in that market before. Cost can vary but it can be expensive.
Once the application is submitted the would-be lender should get a decision within 12 months but the regulator will often come back with questions.
We are now seeing a more robust regulator so even if every form has been completed it will usually have another list of questions to pose to the firm.
The process of dealing with a case officer at the FSA takes time, particularly if they are not familiar with the market. This is more common now because the regulator is currently undergoing change.
There is also an impact on authorisations from the Mortgage Market Review. When applicants submit their policy and procedures most of the time they won’t be initially considered by a case officer.
They will be sent to another department, probably the MMR department, to be looked at from the perspective of how they will meet its requirements.
The MMR department will then ask more questions, so even if the prospective lender has procedures to meet existing rules it will get questions about rules that are in consultation and how it is preparing for them.
Now it is more common to have applications of variations of authorisation from existing banking institutions seeking to offer regulated mortgage contracts.
This is predominantly influenced by the need for more capital requirements, which are now significant compared to what they used to be and tends to be in niche banking sectors such as private client banking.
Depending on what happens with the future of bridging regulation from Europe and the Office of Fair Trading, I expect to see more applications for authorisation in the next 12 months mostly from bridging lenders and private banks.
Would-be lenders – where they stand
- Tesco Bank Pledged to launch in the next few months with announcement imminent.
- Virgin Money Bought Northern Rock in December 2011 and rebranded it to Virgin Money.
- NBNK Bidding for Project Verde – the 600 Lloyds Banking Group branches being sold under European competition rules.
- Portillion Closed down this month after attempting to launch for nearly five years.
- Home & Savings Bank Launch expected later this year but no firm date.
- Castle Trust Initially set to launch last December but delayed due to regulatory process.