- 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
What is the Regulatory Business Plan (RBP)?
- 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?
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
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)
Forecast balance sheet and income statement as well as key performance indicators – growth targets, returns, capital and liquidity metrics
Governance and risk management
Owners and controllers
Structure, board, senior management and governance arrangements
Risk management and control framework, including staffing
Products, pricing, complaint handling and on-boarding arrangements (including Anti-Money Laundering/Know Your Customer processes)
Business continuity and recovery options summarised
IT infrastructure and systems and timescales for implementation and testing
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.
- 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
- 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 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?
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.
Figure 5: Stages of the pre-application process (initial meeting)
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:
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.
Figure 6: Stages of the pre-application process (feedback meeting)
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.
Figure 7: Stages of the pre-application process (challenge session(s))
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)
- Applications need to contain the relevant application forms, alongside a fee which is currently £25,000 (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?
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.
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:
Please do not send these files password protected.
The total application fee is currently £25,000 – 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.
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: firstname.lastname@example.org.
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
When the PRA receive a firm’s application we will:
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:
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.
- (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:
- An auditor’s confirmation that the capital is in place and available; or
- 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.
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.
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’.
CP2/21 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.
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  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?
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 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 sufficient capital resources to meet the mobilisation capital requirements from day one of the mobilisation period and ensure that they continue to meet this requirement throughout the period that they remain in mobilisation.
What are the benefits and is mobilisation right for all new banks?
New banks that have taken the mobilisation route have told us that being authorised allows them to proceed with far greater confidence and to invest in the final stages of the build-out of their bank (including through further capital raising). However, new banks will need to have completed all of their mobilisation activities, demonstrated that they will be fully operational upon exiting mobilisation and addressed any additional issues we have identified during mobilisation before they will be allowed to exit mobilisation and start to trade fully.
Mobilisation is generally suitable for start-up firms which may not have all of the upfront investment, or need that additional time to complete the build-out of their IT systems, infrastructure, recruit staff or engage with third-party suppliers. We expect firms to only use this time to complete the final stages of their development. New banks should demonstrate through their mobilisation plans that they will be able to complete all remaining developments during the period that they expect to be in mobilisation, taking account that the maximum period of mobilisation is 12 months.
Mobilisation may not be necessary for firms that have the resources, capital and infrastructure to allow them to set the bank up fully from day one of authorisation, for example an existing firm or a well-established international banking group seeking to establish a UK subsidiary or branch.
The mobilisation route is optional – but we expect firms to have clearly set out which route they are planning to adopt and why, during their pre-application engagement with us.
Upon review of the firm’s buildout plan, we will assess its feasibility and determine whether it will be deemed acceptable for the firm to use mobilisation. This will be subject to the deemed likelihood of being able to meet the Threshold Conditions at the point of entry into mobilisation and the deemed feasibility of being able to complete all required activities during mobilisation so as to minimise the risk of not being able to complete the plan within the 12-month mobilisation period.
What happens during mobilisation?
Firms taking the mobilisation route will generally not have fully developed operational capabilities but they must meet all the Threshold Conditions and their capital and liquidity requirements at all times.
Authorisation without restrictions (a)
Fully developed – the new bank will need to meet their capital and liquidity requirements.
Fully developed – the new bank will need to meet their capital and liquidity requirements set for the mobilisation period. These requirements are set separately to the post-mobilisation requirements to reflect the restrictions applied in mobilisation on their business model.
Sources of funding
Fully developed for the next 12 months.
Fully developed for the mobilisation period.
ICAAP and ILAAP
Corporate governance Structure Board Senior Management
Fully developed governance framework.
All key Senior Management staff in place.
Appropriate number of independent non-executive directors. Established good practice is at least two.
Chair must not perform an executive function and there is a strong expectation that they should be independent.
Fully developed governance framework.
Key ‘guiding minds’ in place with senior roles critical to mobilisation identified and ready to be recruited.
Minimum Board Chair, CEO and one other Executive.
Customer journey including details of products, pricing, and on-boarding arrangements
Fully developed Recovery Plan.
Credible Solvent Wind-down Plan. (b)
Draft Recovery Plan.
Business Continuity Plan (BCP)
Fully developed BCP.
Risk management and control structures
Near final framework with the necessary controls in place.
IT infrastructure and systems
Material outsourcing arrangements
Policies and procedures
Not required but development should be planned.
Fully developed and signed off by the Board.
During mobilisation, new banks will usually be focused on the following:
- funding – fully capitalising the bank for when they exit mobilisation;
- recruitment – finalising senior management appointments and other staff recruitment and training;
- operationalising their plan:
- finalising their customer journey, including details of products, pricing, and on-boarding arrangements; and
- completing policies and procedures;
- risk and controls – completing the build-out of control functions such as Risk, Internal Audit and Compliance;
- building out their infrastructure:
- building-out, testing and implementing systems and IT infrastructure; and,
- finalising outsourcing arrangements;
- developing their plans if things go wrong:
- finalising their Recovery Plan;
- finalising their Business Continuity Plan; and,
- finalising their Solvent Wind-down Plan.
These activities will depend on the nature of the new bank and their business model. The list of mobilisation activities applicable to the new bank will be discussed with them prior to entering mobilisation and will be clearly articulated in their authorisation letter. Mobilisation activities do not have to be delivered in strict sequence and the new bank can decide when to complete them. Firms may decide to start working on some of those activities prior to entering mobilisation as this may allow more time to complete them.
During mobilisation, the new bank will be an authorised firm and as such must meet the Threshold Conditions and the standards set out in both the FCA Handbook and the PRA Rulebook as well as their capital and liquidity requirements at all times.
While the level of capital requirements applied to new banks during mobilisation is often lower during this period, mobilisation can be very capital intensive and new banks should ensure they have adequate forward-looking capital planning in place so that they do not at any time breach their minimum capital requirements during mobilisation. Funds to meet the capital requirements must not to be used to meet the costs of mobilisation. New banks are also required to remain above their minimum liquidity requirements at all times.
New banks are expected to submit regular progress reports (including details of any issues or slippages against their mobilisation plans and timelines) to us and provide evidence of their progress towards becoming fully-operational, ie Board approved documents to evidence that each aspect of their mobilisation plan has been completed and that any additional issues we have raised have been adequately addressed.
New banks are at the start of their journey to becoming established banks and we expect them to continue to develop and mature as they progress through mobilisation. This includes:
- ongoing development of their governance arrangements and senior management;
- continuing to refine and embed their risk and control frameworks; and,
- continuing to develop their forward-looking financial forecasting and risk management taking account of developments in the macroeconomic environment.
We expect firms to make us aware of any changes to their businesses models and any emerging or crystallised risks.
As soon as they are authorised, new banks are required to submit regulatory returns. The reports that will need to be submitted will be based on the regulated activities they undertake and the nature of their firm (ie if they are a UK headquartered bank, a subsidiary or a branch of an international bank). This will include providing the PRA with the information it needs to monitor their financial position and performance and the FCA with more conduct-focused information on sales, complaints etc.
New banks continue to be overseen by their PRA Supervisor and FCA Case Officer while in mobilisation. Regular update meetings will be arranged to discuss progress against their mobilisation plans and exit requirements. We will require monthly copies of regular Board papers to facilitate these discussions. We expect new banks to maintain a positive regulatory relationships with us through open and constructive communication.
We will provide new banks with regular feedback through face-to-face meetings, telephone calls or by email. As firms progress through mobilisation, we expect that our relationship will evolve as new banks become more accustomed to the regulatory relationship. Firms need to demonstrate that they are moving towards becoming more aware of our expectations and are becoming more independent in delivering against these.
How do new banks exit mobilisation?
We anticipate that new banks will want to progress quickly through the mobilisation phase. This could take as little as a few months but cannot continue indefinitely and should take no longer than 12 months. In order for a new bank to exit mobilisation, they should submit a Variation of Permission (VoP) application via Connect. As part of that application (or ideally beforehand), they need to submit evidence that all actions set out in their Authorisation letter relating to their mobilisation requirements and any other actions we have requested from the firm while they have been in mobilisation have been completed. Our assessment of new banks is ongoing throughout the mobilisation period – our interactions will help to determine whether the new bank is likely to continue to meet PRA and FCA Threshold Conditions and their regulatory capital and liquidity requirements once they exit mobilisation.
It usually takes a minimum of three months for us to assess VoP applications for new banks exiting mobilisation. However, new banks need to discuss timeframes with us and build this into their planning. Similar to a New Authorisation application, we have a statutory obligation to assess VoPs within six months of an application being deemed complete and within 12 months for an incomplete application. More information on the VoP process can be found at Variation of permission.
New banks will need to consider the number and complexity of their mobilisation actions when putting together their mobilisation plans and timelines. They should also be mindful of the timings of their plans and allow for sufficient time for us to complete the assessment of their VoP application. We will discuss these timelines with firms during the application process.
Once the VoP is approved, the new bank will be sent written confirmation that the limitation on the total deposits they can accept has been removed and they can start to trade fully. Changes to a firm’s permissions (for example removal of restriction on deposit taking) will be reflected for the new bank on the Financial Services Register from the date on which the VoP takes effect.
What if there are problems during mobilisation?
In our experience, new banks often underestimate the amount of time they will spend in mobilisation. In particular, the amount of time it takes to build, test and implement IT systems can be a lot greater than expected.
We encourage new banks to ensure that their timetables include appropriate levels of contingency while bearing in mind our expectation that mobilisation should not take longer than 12 months. We do not normally allow new banks to remain in mobilisation beyond a 12-month period but we understand that there may be some circumstances that are beyond a new bank’s control that may have a bearing on their ability to exit mobilisation within the 12-month period. New banks should discuss with us at the earliest opportunity if they believe they may not meet this timeline. Similarly, if we have concerns about the new bank’s progress, we will discuss these with them and may ask them to prepare a revised mobilisation plan.
There may also be additional concerns that emerge during mobilisation and have not been included in the new bank’s mobilisation plans – for example, concerns around effective governance or culture. In this case, the firm will need to demonstrate that they have adequately addressed the issue (such that they meet Threshold Conditions) and that they have put in place controls to prevent such an issue reoccurring in the future. This will need to be evidenced before the mobilisation restrictions are lifted.
If the new bank is unable to complete mobilisation within 12 months, or to the required standard, we may take steps to remove the new bank’s authorisation or they may decide to apply to cancel their authorisation.
- SS3/21 Non-systemic UK banks: The Prudential Regulation Authority’s approach to new and growing banks – This outlines our expectations of firms and new banks and how those evolve throughout the authorisation journey.
- Climbing mountains safely – a speech by Sarah Breeden – This speech, published alongside the CP on the PRA’s approach to new and growing banks, sets out key aspects from the consultation (ie what firms need to consider in order to become an established bank).
- New Banks Start-up Unit seminar slides (October 2019) – These are helpful slides to consider as they outline some of our key expectations and review processes. Please note that some of the information/guidance contained within these slides has since been superseded and no longer reflects current PRA policy.
- PRA new firm authorisation – This includes application and controller forms.
- CP2/21 International banks: The PRA’s approach to branch and subsidiary supervision – This sets out the PRA’s proposals regarding its approach to supervising the UK activities of PRA-authorised banks and designated investment firms that are headquartered outside of the UK or are part of a group based outside of the UK.
- The PRA’s and FCA’s Threshold Conditions – The conditions set by us that new banks will need to meet throughout the mobilisation period.
- Variation of Permission process – This provides information on the process firms will need to go through to remove the restrictions on their permissions and exit mobilisation, including links to all necessary application forms
- Financial Services Register – Where a new bank’s details will appear and includes the mobilisation restriction applied.
Not required for international banks.