The changes have been the result of a review into the banking sector looking at the barriers new entrants face.
Liberal Democrat peer Baroness Kramer, who is a former vice-president of Citibank in Chicago and an ex-MP, said today’s 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.”
Both regulators have today set out changes to regulatory requirements and the authorisation processes which it says will ease the pressures on start-up banks.
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: “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.”
In terms of the authorisation process, start-ups which have completed the application will have the assessment by the Prudential Regulatory Authority and Financial Conduct Authority completed within six months.
Significant levels of up-front support will also be provided during the pre-application stage.
Applicants which are unable to meet the six-month timetable for the authorisation process, either because they cannot fund the up-front investment required or due to longer lead times for raising capital, will have access to an alternative route.
This three-stage route to authorisation will offer the same pre-application support but with a shorter application which focuses on essential elements. The FCA recognises business case, capital, liquidity, and key senior appointments as essential elements.
The authorisation granted will come with a restriction that will enable the firm to then mobilise the remaining requirements such as capital, personnel, IT and other infrastructure.
The changes which have not yet been implemented will come into effect from 1 April when the PRA and the FCA both come into existence.