The FSA is set to relax rules for new banking entrants to make it easier for them to gain authorisation.
Speaking to the Parliamentary Commission on Banking Standards today, FSA managing director and Financial Conduct Authority chief executive designate Martin Wheatley said the FSA began work on a report six months ago with the aim of “bringing down the cost and complexity” of authorisation.
Wheatley said the regulator will relax capital requirements and system readiness for new entrants to help them get started.
He said: “To require a new entrant to have the amount of capital for where it expects its business to be in three to five years is unreasonable to impose on day zero. There may be a level of capital we can expect them to be build up over time rather than up front.”
Wheatley says the same standards of practice apply to all banks, but for new entrants the FSA is willing to relax systems controls.
He said: “New banks tell us that in order to set up they need capital to employ the right people and systems, but they face a catch 22 situation where until they are authorised they cannot get the capital or the people or systems.
“But cannot authorise them until that is in place. We are looking at a staged process where we can give new entrants enough certainty to recruit a chief executive and get capital but still reserve our position that they cannot be fully operational until the right things are in place.”
Wheatley also said he favours transparency of charges instead of regulatory intervention to end free banking because it would not end the problem of some customers paying for the services of others.
He also outlined his approach to product intervention, saying the FSA would restrict access to certain products it felt could cause consumer detriment.
He said: “There are lots of products in the market and some are very complex, difficult to understand and with lots of moving parts, but for the right audience they may be appropriate. We would not want to step in and say you should not sell that product, but for some people it would be inappropriate.”
Wheatley highlights Ucis as an example of a product that is not suitable for private clients but may be suitable for professional investors because of their complexity.