New bank authorisation process

This page sets out the authorisation process for new banks and principles of engagement with regulators.

Key points

  • To achieve their objective of setting up a bank, firms should be ready, willing and organised.
  • Through open and constructive dialogue, we aim for positive regulatory relationships with all firms.
  • The process includes our review of the new bank application as well as the optional pre-application and mobilisation stages.
  • Authorisation is only the start of a new bank’s journey to being an established bank.

What are the principles of engagement with the regulators?

In order to navigate the authorisation process as efficiently as possible and achieve their objective of setting up a bank, firms should be ready, willing and organised. We have provided below some examples of how firms can demonstrate this. Please note that this is not an exhaustive list:

  • Ready and thinking ahead – Firms should ensure that they have a well thought through proposition which has undergone robust challenge and consideration of the inherent risks (this should also be appropriately reflected into their key documents). Firms should ensure that they will have in place appropriately skilled staff and operational infrastructure in order to commence trading at the point of being authorised. This includes a robust IT framework, premises, and finances;
  • Willing – Firms should demonstrate that they have done their research, understanding not only the activities that they will be undertaking but the rules and regulations which their business will be governed by; and
  • Organised – Firms should ensure that they are operationally ready to carry out the regulated activities at the time of their authorisation (if successful).

We aim to have positive regulatory relationships with firms along their journey, from pre-authorisation to becoming authorised and later on becoming established banks. We do this by keeping an open and constructive dialogue:

Our expectations of firms

What firms can expect from us

  • Be open and honest;
  • having consulted the detailed guidance provided on this website, provide all the necessary information we should be aware of in order to undertake our assessments;
  • notify us of any changes as soon as possible;
  • To clearly set out the process and requirements for setting up a bank;
  • develop plans, complete the necessary work, and prepare and send materials in good time for meetings with us;
  • be ready, willing and organised to engage;
  • to host pre-application meetings to discuss the firm’s proposals and highlight any concerns;
  • fully consider and address the feedback we provide on key documents such as the Regulatory Business Plan (RBP)/the Internal Capital Adequacy Assessment Process (ICAAP)/the Internal Liquidity Adequacy Assessment Process (ILAAP) documents; and
  • to provide firms with clear feedback on their proposals including formal written feedback;
  • we will end our pre-application engagement with firms if our feedback is not adequately addressed in the development of their proposition and key documents; and
  • understand, consider and demonstrate how they will meet the required standards at authorisation and on an ongoing basis.
  • to help firms understand the standards required of being an authorised bank.

What is the Regulatory Business Plan (RBP)?

Key points

  • The RBP is the key document describing a firm’s business proposition including how their business model will achieve viability and sustainability.
  • The RBP should include details on the financial projections and route to profitability, and on the governance and risk management arrangements.
  • In addition, the RBP should also capture the customer journey, details on operational resilience, policies and procedures.
  • The RBP should be subject to independent review and challenge. It should be consistent with other documents (such as the ICAAP and ILAAP) and it should consider conduct risk throughout the document.

Figure 1: What is an RBP?

The contents of this figure are described in the text.

Why is an RBP important?

The RBP is a key document describing a firm’s business proposition. It contains details on what the firm plans to do, how their prospective bank will be set up and how their business model will achieve viability in the short term and sustainability in the medium to longer term. In addition, the RBP explains the risks that their business model poses and how these will be mitigated.

RBPs are essential for firms. They help firms focus on how they want to direct their activities and organise their resources. RBPs should also demonstrate that all material risks inherent in the proposed business models have been identified, assessed and mitigated. RBPs are also useful for communicating the firm’s business plans to other stakeholders, such as their prospective investors.

The RBP is the core document that will support a firm’s pre-authorisation engagement with us and is one of the key documents required to be submitted as part of both our pre-application engagement and as part of a new bank application. Based on the information provided, we will assess whether or not a firm will meet (and is likely to continue to meet) the minimum requirements for a bank.

Overall, a clear, concise and well thought out RBP will give comfort to both us and the firm that they will have a safe and sound business that is well governed and controlled. We expect there to be one RBP which is used for all stakeholders (rather than separate documents provided to us compared to investors for example).

What should an RBP include?

Below we have set out some of the key points to be covered in an RBP. However, this is not an exhaustive list and will vary by firm. As such, it is up to the firms to ensure that their RBP provides a comprehensive and detailed picture of their business proposition and that they read as holistic documents.

Business model and financials

Business strategy

Details of products, delivery channels and target market

Route to profitability

Short-term viability and longer-term sustainability (competitive advantage, sources of funding, market research and how the bank will make money)

Financial projections

Forecast balance sheet and income statement as well as key performance indicators – growth targets, returns, capital and liquidity metrics

Governance and risk management

Funding

Owners and controllers

Corporate governance

Structure, board, senior management and governance arrangements

Risk management and control framework, including staffing

Customer journey

Products, pricing, complaint handling and on-boarding arrangements (including Anti-Money Laundering/Know Your Customer processes)

Operational resilience

Business continuity

Business continuity and recovery options summarised

IT

IT infrastructure and systems and timescales for implementation and testing

Outsourcing

Details of key outsourcing arrangements

Policies, procedures and plans

Scope of permission

Details of the regulated activities you wish to undertake

Operational and regulatory policies and procedures

Mobilisation plan (if using this route)

What are the common challenges with RBPs?

Our review of the RBP is a key part of a firm’s assessment – both during our pre-application engagement and as part of our assessment of a new bank application. It is therefore important that they are well-considered. We encourage firms to consider how they will ensure that their RBPs sufficiently address the below points.

The contents of this figure are described in the text.
  • Independent review and challenge – This is important, as what makes sense to the author may not be clear to another reader. An independent review by someone other than the author (for example a board member) of the RBP will help to ensure the following:
    • Readability – The RPB is clear and easy to read, highlighting what core assumptions have been used and why these are considered to be realistic and appropriate;
    • Feedback – The RPB adequately addresses all feedback previously provided, both in terms of granular and overall holistic messages; and,
    • Practical length – The content and amount of detail in the RBP will depend on the scale and complexity of the business model and the risks that it poses, but we would emphasise quality over quantity, which minimises repetition and only contains what is needed.
  • The information within the RBP should be consistent within the document and with other documents as well – The RBP needs to be comprehensive, coherent, and consistent throughout, so that changes made to one part of the document are reflected elsewhere. It also needs to align with other relevant documents, (for example the capital and liquidity documents). Ensuring that the RBP has been subject to the necessary internal governance including independent review and challenge will significantly help with this.
  • Conduct risks needs to be considered throughout the document – We recognise that a firm’s consideration of conduct risk and customer harm will evolve as the business grows, but it is important that the RBP provides evidence that conduct risk has been considered from the outset and not just as an afterthought or as a standalone section.

What is the new bank authorisation process?

While the key part of the authorisation process is our assessment of a firm’s new bank application, there are also the additional optional stages of pre-application and mobilisation described below.

What are the stages of the new bank authorisation process?

The stages of the authorisation process are listed out in Figure 2.

Figure 2: Stages of the authorisation process

The contents of this figure are described in the text.
  • Pre-application – this is an optional stage where firms engage with us early on in order to develop their propositions and prepare their applications to set up a new bank. This stage comprises of three meetings: initial, feedback and technical challenge; while pre-application engagement is optional, based on experience we have found it a very helpful tool to facilitate higher awareness of our rules and expectations which ultimately results in a more comprehensive and higher-quality application. As such, we strongly encourage firms to engage with us as early as possible.
  • Application – submitting an application to us to assess and decide whether to authorise them as a new bank and to set their capital and liquidity requirements; the assessment of a new bank application is PRA/FCA led and at the time firms submit such an application they should start developing their operational capabilities; and
  • Mobilisation – an optional stage in which new banks, once authorised, operate with deposit restrictions while they complete the final aspects of their set up before starting to trade fully. Firms lead the completion of mobilisation actions and operational capabilities, while the PRA/FCA lead on the assessment of whether a firm is ready to exit mobilisation and become fully operational.

What is our pre-application engagement?

Figure 3: Stages of the authorisation process (pre-application)

The contents of this figure are described in the text.

Key points

  • The pre-application stage allows firms to iterate and develop their proposition to support a better-quality application.
  • The pre-application stage is optional, but engaging with us before a firm submits their application can be highly beneficial for all parties.
  • The three key stages of pre-application are the initial, feedback and technical challenge stages.
  • Concluding the pre-application stage does not imply that we will not raise concerns with any potential application or that the firm will have a successful application.

What does the pre-application stage involve?

Figure 4: What does the pre-application stage involve?

The contents of this figure are described in the text.

At the pre-application stage, we hold a series of meetings with firms to help them understand the authorisation process and our expectations, and for us to identify if there are any significant showstoppers that could lead to an unsuccessful application.

The pace at which a firm progresses through the pre-application stage varies by firm depending on the quality, complexity or originality of the firm’s proposition.

We will send firms high-level agendas ahead of all meetings and provide formal written feedback after the meetings. If firms have advisors, they are welcome at all pre-application meetings but we do not expect them to speak on the firm’s behalf.

What is the purpose of the pre-application stage?

The pre-application stage is optional – firms can submit their new bank application to us at any time but meeting with a prospective new bank before they submit their new bank application can be highly beneficial for all parties.

Based on our experience to date, firms have found pre-application very helpful. This is because it allows them to better iterate and develop their propositions to support a better-quality application that is as complete as possible to enable us to reach a decision.

While undertaking pre-application engagement will be constructive for prospective banks, it does not guarantee a successful application as we are not able to fully scrutinise all aspects of a firm’s proposition. At this stage we will review, challenge, and provide feedback on a firm’s proposition but our role should not be seen as consultants. We will perform a holistic review and prioritise providing feedback on potential showstoppers. As such, it is up to firms to ensure that their propositions and supporting documentation are as comprehensive and as well thought through as possible, as our feedback is not exhaustive. Firms should also keep us updated on any material changes to their proposition.

We will not provide feedback continuously on multiple iterations of documents or until those documents are of sufficient quality – we usually meet with firms once at each stage of our pre-application engagement and it is up to them to ensure that they address our feedback (both on a holistic and granular basis) and submit their new bank applications when they are ready to do so. We encourage firms to ensure that they are adequately prepared and that their business propositions are sufficiently developed by the time they engage with us at each stage of pre-application – for example, by engaging too early, firms will not gain the full benefits of our engagement. Concluding the pre-application stage in itself is not an invitation to apply, nor indicative that we will not raise concerns with any potential new bank application or that we will authorise the firm.

Initial meeting

Figure 5: Stages of the pre-application process (initial meeting)

The contents of this figure are described in the text.

What do firms need to know and do?

In advance of the initial meeting, we will ask firms to prepare a high-level summary of their business proposition, which can be in the form of a slide presentation. This should include:

  • an explanation of why they need to be a bank; and
  • details of what the firm is going to do and how they will achieve this, including the below:
    • business model – does the firm have a unique selling point, are they targeting an established area, and how are they going to make their money? What is the firm’s target market and what products will they offer;
    • high-level financial forecasts – balance sheet and income statement for years one to five post authorisation;
    • corporate governance – high-level information on the firm’s Board, senior managers, and proposed governance structure;
    • sources of funding/owners and controllers – details of how the firm propose to fund the business through the differing stages of the banking application process and who the investors/founders are;
    • risks – details of the risks the firm are exposed to and the risks generated by the proposed activities, including conduct risk of harm; and,
    • project plan – an overview and timeline of the firm’s plans to set up the new bank.

What needs to happen before the meeting?

Firms should send us the materials for our review and we will arrange a meeting subsequently.

What will happen at the meeting?

Firms will present their plans to us and will be able to ask questions about the authorisation process. We will look to highlight any potential showstoppers and discuss both their plans and the application process with them. We expect firms to have read the New Bank Start-up Unit webpages, and come prepared with an understanding of why they need to be a bank, what products and services they intend to offer, and how they will deliver this.

What are the next steps?

We will explain what the firm should do in order to progress to the feedback meeting. We aim to send the firm their formal feedback letter, within 10 working days of the initial meeting. The firm should then develop their RBP within a time period appropriate to address our feedback. This should be supported by a cover note and tracking document setting out how and where they have addressed our feedback.

Feedback meeting

Figure 6: Stages of the pre-application process (feedback meeting)

The contents of this figure are described in the text.

What do firms need to know and do?

Firms will need to prepare the first draft of their RBPs ahead of our feedback meeting. The RBP is the key document describing a firm’s business plan, containing what they want to do, why, and how the bank will be set up and make money. Equally importantly, it also explains the risks the business poses and how the firm will look to mitigate them.

Please see the RBP section for further information. In addition, firms may find the application forms and supporting notes at New firm authorisation helpful when preparing their RBPs.

What needs to happen before the meeting?

Firms should send us the materials for our discussion before we meet. This submission will need to demonstrate that the feedback from our initial meeting has been fully and adequately addressed.

What will happen at the meeting?

At the feedback meeting firms will meet their case officers. We may ask specialists from either regulator to attend the meeting, if relevant to the application. We will inform firms if this is the case when we send our high-level agenda ahead of the meeting.

The feedback meeting provides an opportunity for us to scrutinise the firm’s plans in more detail and to identify concerns and areas of focus in advance of a potential application. A firm can expect a detailed discussion of their business model, governance and risk management plans, IT and outsourcing, and, identified conduct risk of harms. We will also discuss the materials and information required for the firm to participate in the next stage (technical challenge session) of their pre-application engagement with us.

What are the next steps?

Within 10 working days of the meeting, we aim to send the firm their formal feedback letter. The firm should then develop their RBP further, taking on board the feedback provided, as well as starting to develop their technical documents (such as the ICAAP and ILAAP).

We will ask firms to submit their ICAAP and ILAAP documents to us for review only once their RBPs are sufficiently well progressed, so that we understand their business proposition and they have fully addressed our feedback. (However, we will not have another feedback meeting to discuss the firm’s RBP and hence, it is essential that firms ensure that our feedback is sufficiently addressed.)

Provided that both the ICAAP and ILAAP documents are of sufficient quality, we will recommend a technical challenge session. However, firms should be aware that moving to the next stage does not imply that we are necessarily content with the proposed business model and further feedback will likely be provided towards the end of the pre-application engagement.

Challenge session

Figure 7: Stages of the pre-application process (challenge session(s))

The contents of this figure are described in the text.

What do firms need to know and do?

The challenge session is the final pre-application meeting we will have with firms. Firms should have a fully developed RBP, which fully incorporates our feedback from the previous meetings, and draft technical documents (ICAAP and ILAAP).

The firm’s management team should own the key documents (RBP, ICAAP and ILAAP) and be able to discuss these in detail at the technical challenge session. The ICAAP and ILAAP should have gone through an in depth review and challenge by someone other than the author (the Board or the key guiding minds of the firm) before they are submitted to us.

In the case of an international firm seeking to establish a UK Third Country branch, a technical challenge session should still be expected even though ICAAP and ILAAP documents are not required for a Third Country branch.

In addition, we may also invite firms to a conduct risk focused meeting to discuss the inherent harms that their proposed business models may create for customers and whether their proposed culture mitigates or amplifies these harms. Considerations around conduct risk should be referenced throughout the RBP and should be sufficiently detailed to allow us to fully understand how firms are proposing to identify and manage these risks.

What needs to happen before the meeting?

Firms should send their updated RBPs to us alongside a cover note explaining where and how they have addressed our feedback. If we do not consider that our feedback has been sufficiently addressed, we will highlight this and consider drawing our pre-application engagement to a close. If we consider that the feedback has been sufficiently addressed, we will invite the firm to submit their ICAAP and ILAAP documents.

What will happen at the meeting?

The technical challenge session will be attended by the case officers along with any relevant technical specialists. We will expect appropriate senior personnel to attend from the firm. In most cases, firms should expect the focus to be on rigorous technical challenge on the ICAAP and ILAAP. Firms could also receive challenge on any aspect of their revised RBPs.

What are the next steps?

At the technical challenge session, we will provide verbal feedback on both the ICAAP and ILAAP documents (and the RBP if relevant). Following the meeting, we will take stock of the firm’s proposition as a whole and provide written feedback to cover this in addition to more granular feedback. Following this feedback a firm will have completed the pre-application stage. The firm should then take the necessary time and care to consider and fully address our feedback – and consider if and when they are ready, willing and organised to apply to become a bank.

What is involved in submitting an application and how do we assess it?

Figure 8: Stages of the authorisation process (application)

The contents of this figure are described in the text.

Key points

  • Applications need to contain the relevant application forms, alongside a fee which is currently £50,000 (the fee may be subject to change in the future).
  • We will determine whether or not an application is complete – this affects the statutory deadline by which we must make a decision.
  • We will assess if the firm will meet and continue to meet on an ongoing basis our Threshold Conditions.
  • Both regulators will make a decision independently on whether or not to authorise the firm – while the PRA will make the final decision on the application, they may only authorise a firm with the FCA’s consent.

When does a firm submit an application?

It is up to firms to decide whether to go through the pre-application stage and then whether to submit a new bank applications to us. The firm’s Board or key guiding minds need to reflect on the most appropriate time for that, taking into consideration whether they have fully addressed the feedback provided in the pre-application stages. Application forms and supporting documents will need to be drafted to an acceptable standard.

The new bank application documents are the basis of our assessment and decision – they are the firm’s opportunity to demonstrate that their business is ready, willing and organised to be authorised as a bank. The firm should not assume that the areas discussed in the pre-application stage will not be assessed further as part of their new bank application as our assessment is ongoing and will often cover in greater depth areas of feedback already raised in the pre-application stage.

It is crucial to be open, transparent, and honest with us as it will raise significant concerns if we find, upon our review, that the firm has provided false or incomplete information. In addition to the required forms, firms should also provide us with any other information that they think we should be aware of but which is not necessarily covered by the application forms. If the firm is in doubt about anything, then they need to disclose it or raise it with us.

How does a firm submit an application?

Forms

Firms can find all the forms that they need to complete through the channels found at New firm authorisation.

Before a firm submits their application, they need to review their submission to ensure that they have provided adequate responses to all questions and enclosed all relevant supporting documents.

Files

To submit an application, firms should follow the below steps:

Firms can submit their application electronically by sending their application form and supporting documents to: PRA-AuthsVoPsCancellations@bankofengland.co.uk.

For applications where the total file size amounts to below 25MB, firms only need to send one email.

For applications where the total file size amounts to 25MB and above (which is common for these submissions), firms should send multiple emails. The subject line should include the following information:

  • Firm name
  • Indicator of number of emails (ie ‘1/15’)

Please do not send these files password protected.

Fees

The total application fee is currently £50,000 – this may be subject to change in the future. The whole fee is payable to the FCA and then this is split equally between the FCA and the PRA. The preferred method for payment of the fee is via BACS payment, however cheques are also accepted. Please refer to the Fees section of the PRA Rulebook and FEES 4 in the FCA Handbook for more information. Please note that in the case of a firm withdrawing their application or being refused, and later re-submitting another application, they would need to pay the full fee again.

BACS method

When a firm makes a payment, they will need to reference it with their application reference number and firm name and then email their remittance advice and payment details to: fcafees@fca.org.uk.

FCA bank details

Account name: FCA Collection account

Bank name: Lloyds Bank

Account number: 00828179

Sort code: 30-00-02

Swift code: LOYD GB 2LCTY

Iban code: GB68 LOYD 3000 0200 8281 79

Please email the remittance advice and payment details to: fcafees@fca.org.uk and PRA-AuthsVoPsCancellations@bankofengland.co.uk.

Feedback

When the PRA receive a firm’s application we will:

  • log the application and distribute copies to the FCA; and
  • assign case officers from the PRA and FCA.

Firms can expect to receive written confirmation of receipt of their application from us along with confirmation of their case officers within five working days from the date the application was received.

How will the regulators make their assessment of an application?

Assessing application completeness

When firms submit their applications, we will determine whether it is complete or incomplete. This affects the statutory deadline by which we must make a decision on the application as follows:

  • For incomplete applications – we have a 12-month statutory deadline from the submission of an incomplete application to assess an application and make a determination.
  • For complete applications – we have a six-month statutory deadline once it has been deemed complete to assess an application and make a determination.

For a new bank application to be deemed complete firms will need to have provided us with all of the required application forms which have been fully and correctly completed, alongside all the necessary supporting documents and information which should be of sufficient quality and detail to allow us to complete our assessment. We stress here the importance of engaging with us as early as possible in order to understand our rules and expectations, and to ensure that firms submit applications which are as comprehensive and complete as possible.

This includes an expectation that firms will have incorporated responses to our feedback provided during the pre-application stage. We will formally write to the firm with the outcome of our completeness assessment and areas of incompleteness (if required).

Common areas of incompleteness

Through our assessments to date, we have observed a number of common areas, which result in applications being deemed as incomplete, these are outlined below. Before submitting an application firms should check if all of the below is included within their submission (please note that this is not an exhaustive list):

  • clear articulation of how our feedback from the pre-application stage has been addressed in the application submission;
  • all supporting documents requested by the ‘Banks: application forms and guidance’ section of New firm authorisation;
  • All supporting documents requested by the Senior Managers Regime (SMR) application forms;
  • Capital Requirements Regulation (CRR) Article 26(3) permission application for the relevant capital instruments to be classified as Common Equity Tier 1 (CET1) (not applicable for branches of international firms);
  • all controller forms and supporting documents at New firm authorisation – as these forms require specific details about investors and owners, this will require having a clear and final view of the firm’s ownership structure at the point of authorisation; and,
  • confirmation of key hires – at a minimum, a firm must have a Chief Executive Officer (CEO), Chair of the Board, and one other executive SMR holder (for example a Chief Financial Officer) in order to be authorised – as such, we expect firms to submit the necessary Senior Management Function (SMF) applications and supporting evidence for all relevant SMF holders. A firm should also provide a clear explanation of why they think that those as well as other key hires are appropriate. For international banks operating in the UK through a branch, a firm must have a Head of Overseas Branch.

Assessing Threshold Conditions

We will assess whether, based on the information provided, a firm will meet and continue to meet on an ongoing basis both the PRA’s and FCA’s Threshold Conditions which are outlined in the table below. Our Threshold Conditions are the minimum standards that all firms need to meet at authorisation and on an ongoing basis. We will only authorise a firm if both of us (the PRA and FCA) are satisfied that this is the case.

Our Threshold Conditions are summarised below:

The PRA’s Threshold Conditions for banks are:

The FCA’s Threshold Conditions for banks are:

  • legal status: Deposit-takers must be corporates or partnerships;
  • location of offices: A UK incorporated corporate body must maintain their head offices and, if one exists, their registered office in the UK;
  • prudent conduct of business: The firm must conduct their business in a prudent manner, which includes having appropriate financial and non-financial resources;
  • suitability: The firm must satisfy the PRA that they are a ‘fit and proper’ person with regard to all circumstances to conduct a regulated activity; and
  • effective supervision: The firm must be capable of being effectively supervised by the PRA.
  • effective supervision: The firm must be capable of being effectively supervised by the FCA;
  • appropriate non-financial resources: The firm’s non-financial resources must be appropriate in relation to the regulated activities they seek to carry on, having regard to the FCA’s operational objectives;
  • suitability: The firm must be a fit and proper person. The firm’s management must have adequate skills and experience and act with integrity (fitness and propriety). The firm must have appropriate policies and procedures in place and it must appropriately manage conflicts of interest; and
  • business model: The firm’s strategy for doing business must be suitable for a person carrying on the regulated activities it undertakes or seeks to carry on and must not pose a risk to the FCA’s objectives.

The PRA’s assessment will focus on their statutory objective to promote the safety and soundness of firms and their secondary objective to facilitate effective competition between firms. The FCA’s assessment will focus on their statutory objectives of protecting consumers; protecting and enhancing the integrity of the UK financial system; and promoting effective competition in the interests of consumers. More details can be found in The PRA’s and FCA’s Threshold Conditions factsheet.

Our assessment of whether a firm meets both regulators’ Threshold Conditions incorporates a wide range of work, as shown in Figure 9 below and included, as examples, within the following text (please note that this is not an exhaustive list).

There is no set order to the assessments and the assessment of one area will likely feed into other areas. For example, a review of the ICAAP and ILAAP documents could provide a useful insight into the firm’s governance arrangements. Throughout the application stage, we will hold regular update calls with the firm for both parties to share an update on progress (for us to provide an update on our assessment and for the firm to provide an update on their preparedness to launch their business).

Assessing all aspects of the firm’s proposition

Figure 9: New bank application assessment

The areas that we assess as part of a new bank application are set out below.

The contents of this figure are described in the text.

Footnotes

  • (a) If you require further information please speak to your FCA Case Officer.

Governance (including SM&CR) assessment

We will assess the firm’s governance arrangements to ensure that they have appropriate arrangements in place to effectively oversee the business and support their business growth. This assessment covers a range of topics, including the skills and experience of the people running the business (ie the board and senior management), the composition of the board (including the degree of independence) and any conflicts of interest and how those are managed. This feeds into the PRA’s Threshold Condition assessment of ‘Prudent conduct of business’ (having appropriate non-financial resources) and the FCA’s Threshold Condition assessment of ‘Suitability’.

We will assess the suitability of the firm’s senior managers and board through the Senior Managers and Certification Regime (SM&CR). Alongside their new bank application, firms should submit applications for those individuals applying for senior management functions and demonstrate why they consider that these individuals are suitable. Details on the SM&CR, as well as all the relevant application forms and supporting documents, can be found at Senior Managers Regime: approvals.

We will assess whether the individuals proposed are fit and proper, including that they have the skills, capabilities and behaviours required to hold key positions at the firm. These individuals should be the right people to create the right culture for the firm. In certain cases, an interview will form part of the assessment of whether the candidate is fit and proper. Our assessment will also consider the collective capability of the management team and the Board. This feeds into the PRA’s Threshold Condition assessment of ‘Prudent conduct of business’ (having appropriate non-financial resources) and the FCA’s Threshold Condition assessments of ‘Appropriate non-financial resources’ and ‘Suitability’ (having appropriate policies and procedures).

See the ‘governance’ supervisory topic section for more information on our expectations in this area.

Business model analysis

We will analyse the firm’s business model, including the risks and sensitivities that their business is exposed to. This is to reach a view on whether their business model has the potential to be viable in the short term and sustainable in the medium to longer term. This feeds into the PRA’s Threshold Condition assessment of ‘Prudent conduct of business’ (having appropriate non-financial resources) and the FCA’s Threshold Condition assessments of ‘Appropriate non-financial resources’, ‘Suitability’ (having appropriate policies and procedures) and ‘Business model’.

See the ‘business model’ supervisory topic section for more information on our expectations in this area.

Risk Management Assessment

We will assess the design of the firm’s risk management framework and controls to assess whether they are appropriate and can support the delivery of the business plan in a well-governed and controlled manner. This feeds into the PRA’s Threshold Condition assessment of ‘Prudent conduct of business’ (having appropriate non-financial resources) and the FCA’s Threshold Condition assessments of ‘Appropriate non-financial resources’ and ‘Suitability’ (having appropriate policies and procedures).

See the ‘risk management’ supervisory topic section for more information on our expectations in this area.

Capital and liquidity

We will review the firm’s ICAAP and ILAAP documents and use them to formally set the firm’s capital and liquidity requirements to ensure that they will have sufficient financial resources as an authorised bank (to meet the PRA’s Threshold Condition of ‘Prudent Conduct of Business’ which includes having appropriate financial resources). Our decision on the expected capital and liquidity requirements will be communicated to the firm in writing, before the final decision on their authorisation is made. This is to allow firms to make the necessary preparations to meet those requirements upon authorisation.

This assessment is not applicable for branches of international firms, however in such cases we will look at capital and liquidity on a whole-firm basis.

In order to authorise a firm, they should provide us with proof of capital to demonstrate that they have sufficient resources. This should be provided as follows:

  1. An auditor’s confirmation that the capital is in place and available; or
  2. All of the following:
    • Bank statement showing injection of capital;
    • SH01 Form from Companies House; and,
    • Board minutes evidencing agreement to issue share capital.

If using mobilisation, it is sufficient to demonstrate that they have enough capital for the mobilisation period. For firms not using mobilisation, or in order to exit mobilisation, firms should demonstrate that they have sufficient capital for the first 12 months of planned operation.

See the ‘capital’ and ‘liquidity’ supervisory topic sections for more information on our expectations in this area.

Capital instruments assessment

Firms will need to apply to us for a CRR Article 26(3) permission to have their capital instruments classified as CET1 capital. If the firm meets the requirements, we will grant a permission under CRR Article 26(3), which allows their capital to be classed as CET1. This assessment will also look at whether the firm’s share structure meets our expectations that firms should refrain from complexity in their share structures (for example having more than one class of share). This feeds into our assessment of whether a firm meets the PRA’s Threshold Conditions on ‘Prudent conduct of business’ (which includes the need for firms to have appropriate financial resources) and on ‘Effective supervision’.

See the ‘capital instruments’ supervisory topic section for more information on our expectations in this area.

Owner/controller assessment

We will review the suitability of the firm’s controllers and ultimate owners and their sources of funds to assess whether they are fit and proper. A review of the controllers is important to reduce the risk that those individuals could cause reputational issues to the new bank once authorised.

We will need to ensure that we understand the purpose of all the different entities within a firm’s legal structure and that we know who the ultimate parent is, where there is more than one entity in the group. This is to ensure we understand the risks posed by any other entities within the group structure to the proposed bank, and that we can set consolidated capital and liquidity requirements where necessary. This assessment feeds into our Thresholds Conditions of ‘Effective Supervision’.

Supervisory Statement 5/21 and Policy Statement 19/21: International banks: the PRA’s approach to branch and subsidiary supervision sets out the PRA’s expectations for receiving information concerning the risks in the wider group and co-operation from other supervisory authorities concerned with the firm or its wider group. This is necessary for the PRA to be satisfied that the international bank is meeting Threshold Conditions, particularly the Threshold Condition concerning the effective supervision of the firm.

See the ‘controller’ supervisory topic section for more information on our expectations in this area.

Recovery planning

We will review the firm’s recovery plan to assess: (i) whether the plan is realistic and robust; and (ii) whether firms have considered a range of recovery options and the impacts and limitations of those options. Firm should consider the guidance available in SS9/17 Recovery Planning. This feeds into the PRA’s Threshold Condition assessment of ‘Prudent conduct of business’ (having appropriate non-financial resources) and the FCA’s Threshold Condition assessments of ‘Appropriate non-financial resources’ and ‘Suitability’ (having appropriate policies and procedures).

See the ‘recovery planning’ supervisory topic section for more information on our expectations in this area.

Orderly exit (solvent wind-down) and resolution

While it is unlikely that firms will be actively thinking about what happens if they fail, competitive markets involve firms being able to enter and exit. Our aim is therefore not to avoid all instances of firm failure but to ensure that a new bank would be able, if necessary, to fail in an orderly manner.

For all firms,footnote [1] we will review their solvent wind-down plans to assess whether they can wind down their business to the point that it can be liquidated safely if required. Firms should have a robust and credible solvent wind-down plan at the point of exiting mobilisation (or at the time of their authorisation if they are not using the mobilisation route).

In addition, firms should prepare to maintain a single customer view and exclusions file in order to support orderly resolution (see the Financial Services Compensation Scheme for more detail on these requirements). We will also review the firm’s resolution pack (phase 1 information in SS19/13 Resolution Planning). This feeds into the PRA’s Threshold Condition assessment of ‘Prudent conduct of business’ (having appropriate non-financial resources) and the FCA’s Threshold Condition assessments of ‘Appropriate non-financial resources’ and ‘Suitability’ (having appropriate policies and procedures).

See the ‘orderly exit (solvent wind-down) and resolution’ supervisory topic section for more information on our expectations in this area.

Conduct risk of harm and customer journey

We will assess the firm’s business model, including the conduct risk of harm and customer journey that their business is exposed to.

This assessment covers a range of topics, including:

  • how significant the impact of external factors could be on the firm’s business model;
  • how significant the inherent drivers of harm could affect the firm’s business model; and,
  • how effective the firm is in reducing the potential risk of harm arising from the firm’s culture.

This feeds into the FCA’s Threshold Condition assessment of ‘Business model’ (the firm’s strategy for doing business is suitable and does not pose a risk to the FCA’s objectives).

IT, outsourcing and business continuity planning review

We will assess the IT infrastructure, systems and timescales for implementation and testing, outsourcing arrangements and business continuity plans to ensure that these are fit for purpose. This feeds into the PRA’s Threshold Condition assessment of ‘Prudent conduct of business’ (having appropriate non-financial resources) and the FCA’s Threshold Condition assessment of ‘Suitability’ (having appropriate policies and procedures).

How is a decision made by the regulators and communicated to firms?

Decision process

Both regulators will make a decision independently on whether or not to authorise the firm. While the PRA will make the final decision on the application, they may only authorise a firm with the FCA’s consent. If the FCA does not provide their consent, the PRA will be unable to authorise the firm.

The case officers will make a recommendation to the decision-makers to approve or refuse an application. The decision to approve or refuse an application also incorporates the recommendation, or not, for all senior managers or any other transactions linked to an application (such as waivers).

The decision to authorise a firm is made by a senior decision-maker at each of the regulators (the case officers will not decide whether to approve or refuse an application).

The decision to authorise a firm must always be made within the relevant statutory timelines.

In the event of a decision to approve a new bank application

If we decide to approve an application, the new bank’s details will be shown on the Financial Services Register from the date of authorisation as shown in the authorisation letter. We will provide the new bank with the following upon authorisation:

  • authorisation letter – which will include the details of any restrictions the new bank is subject to, in particular, if they are taking the mobilisation route;
  • scope of Permission Notice – which is the Part 4A permission and will set out the date from which the permission has effect which regulated activities the new bank has permission to carry on and any requirements or limitations;
  • SMR approval appendix which will list all the SMR applications approved alongside the authorisation application; and,
  • welcome pack – which includes information on the PRA’s Rulebook and FCA’s Handbook, regulatory transactions, systems, regulatory reporting, and fees.

The new bank will receive written notices for related applications (for example the article 26(3) permission application or any waivers) separately.

In the event of a decision to refuse a new bank application

Applications, which we are seeking to refuse, will be done so in accordance with PRA and FCA internal governance processes and in line with our obligations within FSMA.

What is the mobilisation stage?

Figure 10: Stages of the authorisation process (mobilisation)

The contents of this figure are described in the text.

Key points

  • The mobilisation route is optional.
  • Mobilisation enables new banks to secure further investment, recruit staff, invest in IT systems and commit to third party suppliers etc due to them being an authorised bank.
  • During mobilisation, we limit the amount of total deposits that a new bank can accept to a total of £50,000.
  • Mobilisation could take as little as a few months but cannot continue indefinitely and should take no longer than 12 months.

Once a new bank is authorised, mobilisation is a period of up to 12 months where their deposit-taking permission is restricted (ie to a total of £50,000 of deposits) while they complete the remaining build out of their bank. This often enables new banks to secure further investment, recruit staff, invest in IT systems and commit to third-party suppliers etc, due to them being an authorised bank.

Mobilisation is sometimes referred to as ‘Authorisation with Restrictions’ or ‘AwR’. Mobilisation was introduced as an optional stage following A review of requirements for firms entering into or expanding in the banking sector.

New banks using the mobilisation route will appear on the Financial Services Register as authorised banks, but with a £50,000 limit on the total amount of deposits that they can accept.

Mobilisation allows new banks that extra time to finalise the development of their banks, ie IT infrastructure, governance and risk management frameworks, with the benefit of being authorised. As firms will be authorised, they will be required to meet all PRA and FCA Threshold Conditions (including their capital and liquidity requirements to meet the PRA’s Threshold Condition of ‘Prudent Conduct of Business’) from the point of being authorised and ensure that they continue to meet these throughout their time in mobilisation. Due to this, the majority of the bank’s development will need to have been done in advance of being authorised. As such, we expect the mobilisation period to be used for the completion of a limited list of activities.

New banks in mobilisation are set separate capital requirements to that which they must hold once authorised without restrictions. This tends to be lower than that set for the firm once it exits mobilisation as it takes account of the fact that they are not yet fully operational. We will communicate both of these capital requirements to the firm during the application assessment process. Firms must have suffi