The Prudential Regulation Authority has authorised five new banks and witnessed a substantial increase in the number of firms discussing the possibility of becoming a bank since the regulators reduced the barriers to entry for new financial institutions.
The five banks authorised since the start of April last year are Axis Bank UK, Union Bank of India (UK), FCMB (UK), UBA Capital (Europe) and Paragon Bank.
In the twelve months to the end of March, the regulators held pre-application meetings with over 25 potential applicants.
These firms have a range of different business models, from retail and wholesale banking to Financial Conduct Authority-regulated payment services firms which are looking to enter the banking market and offer deposits and lending to their current client base.
The two City watchdogs today (8 July) published a review of the changes introduced last year which focused on two key areas: reforms to and a simplification of the authorisation process for new banks; and a major shift in the prudential regulation, such as capital requirements, for new entrants.
It found that the new ‘mobilisation’ option, where authorisation is granted when a firm has met key essential elements but with a restriction on their activities due to some areas still requiring completion, was helpful for applicant firms that may previously have faced challenges in raising capital or investing in expensive IT systems without the certainty of being authorised.
Three of the five newly authorised banks used the mobilisation option, and several firms in the pre-application stage have also shown an interest in this route.
Capital and liquidity requirements for new entrants are now lower than before, but are set against a requirement for a firm to show the regulators that it has a clear recovery and resolution plan in place in the event of it getting into difficulty in the future.
This reduction in the barriers to entry means that the minimum amount of initial capital required by a new entrant bank is £1m compared to £5m under the previous regime.
Martin Wheatley, chief executive of the FCA added: “In any sector newcomers to the market bring fresh thinking, and challenge established firms to consider how they can offer a better deal or improve the service they offer.
“I’m keen we maintain this progress, and want to see greater competition in retail banking work for the benefit of consumers.”
