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FSA relaxes barriers for new banking entrants

Lord Adair Turner 480
Adair Turner

The FSA and the Bank of England have agreed to relax the requirements for new banks in the UK following a review of barriers faced by new entrants in the banking sector.

The FSA will be replaced by the Financial Conduct Authority and the Prudential Regulation Authority next week. Both of the new bodies will need to approve new entrants to the banking industry.

The changes announced will see the PRA and FCA complete assessments of new entrants within six months provided the applicant is able to deliver a complete application form and supporting materials.

New entrants that cannot meet the six-month timetable because of a lack of up-front investment, or a need for more time to raise funds or set up infrastructure, will be able to go through an approval of all other aspects of the business and receive authorisation with restrictions that will enable the firm to mobilise remaining requirements.

Currently the authorisation process can take up to two years.

The regulator has confirmed new start-up banks will only need to have 4.5 per cent of equity to risk-weighted assets required by Basel III, as opposed to the 7 to 9.5 per cent required of existing banks in the UK.

It has also removed requirements to have “add-ons” which often saw new entrants needing to have higher capital requirements than existing banks.

FSA chairman Adair Turner says: “This has been a comprehensive review and we have made some bold changes, ones that respond to the difficulties faced by applicant firms. We believe the changes will make a significant difference to the ease with which new firms can enter the UK banking system and, as a result, enable an increased competitive challenge to existing banks.”

Parliamentary commission on banking standards chair Andrew Tyrie says: “This appears to be a step in the right direction. The lack of competition in banking has been reinforced by a regulatory regime favouring large incumbents. Customers have lost out as a result. Moves to remove barriers to entry are essential.”

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