Under the new regime, which will come into effect once the Prudential Regulation Authority (PRA) and FCA come into existence on 1 April, there will be no automatic new bank liquidity requirement, while only the core tier one capital requirement of the Basel III regime will apply. This means that the capital requirement will be 4.5% versus the 7% to 9.5% requirement for major existing banks.
Further, start-up banks will not be subject to the add-ons previously applied to reflect the inherent uncertainties in start-ups, while the possibility of bank failure is now reflected in the Prudential Regulation Authority (PRA) philosophy of regulation provided that there are clear mechanisms in place to resolve banks smoothly and without threatening financial stability.
The authority has also announced improvements in the authorisation process, and they will aim to complete assessment and decision making within six months of applications. They will also provide a support service to firms in the pre-application period.
Those firms without the up-front investment required to meet the six month timetable will be able to ask for an alternative, three-stage route to authorisation. This will involve completing a shorter application which focuses just on essential elements such as business case, capital and liquidity, and then being granted a restricted authorisation which enables the firm to mobilise the remaining requirements such as personnel, IT and other infrastructure.
FSA chairman Adair Turner commented: “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.”
