FCA shakes up approval process for new banks

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The Financial Conduct Authority has sought to overcome the “catch 22” situation faced by new banking entrants seeking regulatory approval by allowing would-be banks to apply for authorisation at an earlier stage.

Previously, banks and other firms seeking regulatory approval have had to incur the costs of setting up the business, hiring senior management and securing financial backing ahead of applying for authorisation.

In March, FCA chief executive Martin Wheatley described this as a “catch 22” situation with firms unable or unwilling to invest in their business infrastructure without knowing whether they will be authorised at the end of the process. He floated the idea of interim authorisations to overcome this potential barrier to new entrants.

In a paper today setting out the FCA’s objectives, the regulator says it has introduced an alternative route to authorisation for new banks.

It says potential entrants can choose between two authorisation processes, with one route including a “mobilisation phase” with the costs of building the bank infrastructure deferred until authorisation has been granted.

The FCA says: “To enter the banking market originally required setting up expensive infrastructures before the authorisation process. The problem with this was there was no guarantee the authorisation would be given, so considerable expense could be wasted.

“The FCA has made this simpler. Choosing the mobilisation option makes it easier for new market participants to enter, therefore promoting competition in this market.”