An effective process for authorising new banks is crucial for an efficient and well-functioning financial system. Robust controls around the creation of new banks give confidence that they are trustworthy places for people’s money. But it is also important, from a competition perspective, that authorisation requirements for new banks are not unduly burdensome and do not discourage firms that meet the appropriate standards from entering the market.
In the UK, responsibility for authorising new banks is split between the PRA and the FCA. The PRA decides whether to authorise a new bank but can only do so if the FCA consents. In 2016, the PRA and FCA launched the New Bank Start-up Unit (NBSU) to provide information, guidance and support to prospective applicants. The NBSU aims to make setting up a new bank as clear and straightforward as possible, encouraging increased competition in the banking sector while ensuring high standards at prospective banks.
‘Pre-application’ is a core part of the NBSU process, helping firms to understand the authorisation process and the regulatory framework, before they submit a formal application. Regulators can give feedback at an early stage to help improve any subsequent formal application, before firms’ business propositions are too advanced for them to be easily changed.
Once a firm has applied for authorisation the PRA and FCA assess it against a set of ‘threshold conditions’ specific to each regulator. The PRA focuses on the safety and soundness of a firm. The FCA focuses on protecting consumers, protecting and enhancing the integrity of the UK financial system, and promoting effective competition in the interests of consumers.
Individuals who intend to take important roles in running and governing a new bank are also assessed, as part of the Senior Managers and Certification Regime (SM&CR). This helps to ensure these individuals have the skills, capabilities and behaviours required and can be held to account for their actions or inactions.
Many new start-up banks are choosing to enter mobilisation — or authorisation with restriction — as a first step towards becoming fully operational as a new bank. Mobilisation enables new banks to benefit from the certainty of being authorised to help them to secure further investment, recruit staff, invest in IT systems and commit to third-party suppliers, etc, in exchange for limitations being imposed on their business.
How banks are authorised in