Life as an authorised bank (without restrictions)

What is the journey to becoming an established bank?

As new banks develop following authorisation, we expect them to invest in their business to ensure it continues to grow safely and is able to respond to and recover from stress, while ensuring that they meet our Threshold Conditions and their regulatory requirements along their growth path. This includes, but is not limited to, the points outlined below. Please refer to the supervisory topics section for more detailed information on:

• having greater clarity over their path to profitability and meeting their capital and liquidity requirements along that journey;
• strengthening their governance arrangements and increasing the independence of their Boards; and
• investing significantly in their risk management frameworks and controls so that they grow and develop as the business grows.

Gaining authorisation is just the first step to being an established bank – the start of the journey. In order to help firms gain authorisation, a key part of our approach is to ensure that our rules and requirements are proportionate to the size and complexity of the firm. However, many prospective and newly authorised banks underestimate the development required to become successful and established.

What are the Threshold Conditions, Fundamental Rules and Principles for Businesses?

Authorisation is only the start of the journey to becoming an established bank. As authorised firms, new banks will need to ensure that they meet the regulatory requirements that are relevant to them. This includes meeting our Threshold Conditions which are the minimum requirements a firm needs to meet to be authorised.

In addition to our Threshold Conditions, there are:

• eight PRA Fundamental Rules, which are high-level rules which collectively act as an expression of the PRA’s general objective of promoting the safety and soundness of regulated firms; and
• eleven FCA Principles for Businesses, which are a general statement of firms’ fundamental obligations under the regulatory systems.

Please see the Fundamental Rules and Principles for Businesses for more detail.

The PRA Rulebook and the FCA Handbook also set out more detailed requirements for authorised firms.

It is vital that Boards and Senior Management understand:

• our Threshold Conditions;
• the PRA’s Fundamental Rules and the more detailed rules in the PRA Rulebook; and,
• the FCA’s Principles for Businesses and the more detailed rules in the FCA Handbook.

What is the supervisory approach for new banks?

New banks are supervised by the PRA for prudential matters and by the FCA for conduct matters. The table below summarises each regulator’s approach to supervision.

Firms can read more about our approach to banking supervision at PRA’s approach to supervision of the banking and insurance sectors, and the Supervisory Statement 5/21 and Policy Statement 19/21 – International banks: The PRA’s approach to branch and subsidiary supervision.

What to expect as a newly authorised bank

• Access to the New Bank Start-up Unit helpline;
• access to their supervisor at the PRA;
• access to the supervision hub at the FCA;
• monthly regulatory update emails (requires free subscription);
• invitations to seminars specifically targeted at banks’ senior management non-executive directors (NEDs); and,
• invitations to events, alongside other firms, on key topics.

PRA’s supervisory approach for newly authorised banks

• New banks will have monthly calls with their PRA supervisor to discuss progress of rolling out the business plan and provide updates on any developments. New banks will be asked to provide materials to support these discussions – for example board and board sub-committee papers/minutes, management information, audit papers, etc;
• new banks should ensure regular completion and submission of regulatory returns which will have varying frequency depending on the specific return;
• new banks will have an annual on-site visit from the PRA,^{footnote [1]} which aims to cover a number of topics in varying levels of detail. The PRA may conduct further reviews during the year based on information gathered through our ongoing supervision and any emerging concerns (this is not necessarily conducted for small international banks); and
• an annual review of the firm (approximately 12 months after launch and informed by the supervisory work during the preceding year) that formally considers the risks posed by the new bank and sets the supervisory strategy for the coming period. This involves an annual internal meeting held by the PRA called a Periodic Summary Meeting (PSM). As part of this process, we will agree the supervisory agenda and work programme for the coming year and review the bank’s capital and liquidity requirements. If applicable, we will also contact the new bank’s Home State Supervisor as part of the PSM.

PRA capital and liquidity reviews

The Capital Supervisory Review and Evaluation Process (C-SREP) and Liquidity Supervisory Review and Evaluation Process (L-SREP) can take the form of either on-site visits from the PRA or a desk-based review. If we do visit then the reviews will usually be carried out separately.^{footnote [2]}

We may want to meet with a number of senior managers and NEDs to discuss the new bank’s capital, liquidity and risk management polices as set out in their Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Adequacy Assessment Process (ILAAP) and supporting documents. We will ask for these documents ahead of our visit.

Due to the rate of growth of many new banks, we undertake regular reviews of capital during the early years. We will review the liquidity requirements for new banks typically 18 months after launch. For international banks operating in the UK through a subsidiary, we will review the capital requirements and liquidity requirements within 12-18 months of authorisation, before moving onto a three yearly cycle.

More information on the C-SREP can be found in SS31/15 The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP).

More information on the L-SREP can be found in SS24/15 The PRA’s approach to supervising liquidity and funding risks.

FCA’s supervisory approach for newly authorised banks (within their flexible portfolio)

• New banks will have an introductory meeting with their FCA supervisors once they have exited mobilisation. At this meeting, they will discuss the types of events which should warrant further contact with FCA supervision going forward;
• new banks will have subsequent meeting(s) with FCA supervision. The frequency of these meetings will predominately be determined by their business models;
• the day-to-day contact with the FCA will be via the FCA’s supervision hub;
• new banks will be subject to event-driven, reactive supervision and issues and products supervision; and,
• overall though new banks should expect their day-to-day contact with the FCA to be less than that with the PRA.

FCA introductory and subsequent meetings

• The introductory meeting is an opportunity for the FCA to get to know the new bank better, explain their expectations around the new bank’s conduct framework and open channels of communication;
• the FCA will require an outline of the new bank’s business plan and strategy. In the meeting, the new bank and the FCA will jointly design a customised interaction plan based on the specific characteristics of the new bank and the FCA’s risk appetite;
• as part of this interaction plan, there will be subsequent meeting(s) where the new bank will update the FCA on progress to date and discuss challenges so far; and,
• the frequency of these meetings will predominately be based on the business type and risks to the FCA’s objectives.

Contacting the FCA?

At the introductory supervisory meeting, the FCA will discuss the types of events where new banks should contact them. The list below is not exhaustive but includes some examples of events (where they are material) where new banks should contact FCA Supervision:

• Retail banking
  • Changes to business model and/or strategy;
  • failings of IT infrastructure which impact the customer;
  • financial crime and anti-money laundering issues;
  • notification of consumer redress and remediation exercises;
  • governance and Senior Management changes; and,
  • data breaches.
• Wholesale banking
  • Changes to business model and/or strategy;
  • failings of IT infrastructure which impact the customer; and
  • governance and senior management changes;
    • conflict of interest management breaches; and,
    • material financial crime and anti-money laundering issues.

What are the regulatory reporting requirements and systems?

New banks (including those in mobilisation) will be required to submit regulatory reports. The reports a new bank will need to submit will be based on the regulated activities they undertake and the nature of their firm (ie if the new bank is a UK headquartered bank, a subsidiary or a branch of an international bank). This will include providing the PRA with the information they need to monitor the new bank’s financial position and performance and the FCA with conduct-focused information on sales, complaints etc.

If a return is due for submission but the new bank has not conducted any regulated activities from the date of authorisation to the reporting end date, they will still be required to submit the return.

New banks must submit their regulatory returns in a timely, accurate and efficient manner. If they fail to do that, they will incur an administrative fee of £250.

RegData | FCA

New banks will submit many of the regulatory returns via our RegData | FCA system. This is an online regulatory reporting system for the collection, validation and storage of regulatory data. There may be other returns that are collected outside of RegData | FCA but where applicable the new bank will be provided with necessary templates and instructions.

New banks can register for RegData | FCA through the portal homepage. More information is provided in the welcome pack that new banks receive when they are authorised. Once this has been done, new banks will be able to view their reporting schedule, which details the returns that they are required to submit over the next 12 months, and when they are required.

Connect system

New banks will need to use the FCA’s Connect system to submit applications for some regulatory transactions and, to keep their standing data up to date. Standing Data is basic information about the new bank, which is required in order for the PRA and FCA to undertake our supervisory duties. It includes: registered name of the bank; trading name(s) of the bank; country of incorporation; registered office; principal place of business; website address; telephone number; the name and email address of the principal compliance contact; name and address of the firm’s auditor; and accounting reference date.

New banks can register for Connect through the portal homepage.

Regulatory fees and levies

As authorised firms, new banks must pay annual fees and levies. The amount charged will depend on the type of regulated activities that the new bank carries out, the extent of the new bank’s activities and how much it costs us to regulate these types of activities. New banks can find out more about regulatory fees and levies on the PRA’s and FCA’s websites.

Keeping up to date with regulatory information

There are several ways for new banks to keep up to date with changes to the regulatory landscape.

The PRA’s homepage includes the latest news and publications, and links to key initiatives. It also includes all PRA publications, including policy publications, which new banks can search by sector and type of publication. Likewise, the FCA’s website includes all FCA Consultation Papers and Policy Statements.

New banks should also look out for the below:

• PRA Regulatory Digest – a monthly communication that highlights the latest regulatory news and publications. Firms are encouraged to continue to visit the PRA’s homepage throughout the month, ‘subscribe to alerts’ (for free) and visit the calendar for upcoming news and publications, you can do all this through visiting the PRA’s homepage;
• FCA Regulation round-up – a monthly email to all authorised firms updating them on the latest news (requires free registration). Readers can also keep up to date with the latest news and publications on the FCA’s website;
• keep updated on European and international developments for the banking sector by referring to the websites for the European Banking Authority, Basel Committee on Banking Supervision, and Financial Stability Board;
• seminars – these are held periodically for senior management. It is a chance for new banks to hear directly from us about key issues that are of interest to the banking sector; and
• consider making contact with other organisations such as trade bodies that represent the banking industry, such as UK Finance and the Association of Foreign Banks.