BoE published an article, in the Quarterly Bulletin for the third quarter of 2019, on how banks are authorized in the UK. In the UK, responsibility for authorizing new banks is split between PRA and FCA. The article explains the roles and responsibilities of regulators in authorizing banks and outlines the process that a firm goes through when it wants to set up a bank. Forty-six new banks have been authorized by PRA and FCA since April 2013. PRA decides whether to authorize a new bank but can only do so if FCA consents.
In 2016, 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. 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 authorization, PRA and FCA assess it against a set of "threshold conditions" specific to each regulator. PRA focuses on the safety and soundness of a firm while FCA focuses on protecting consumers and the integrity of the UK financial system. 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). Many new start-up banks are choosing to enter mobilization—or authorization with restriction—as a first step toward becoming fully operational as a new bank.
Both regulators continue to be responsive to industry trends and developments. A current challenge comes from technological innovation and change, as firms propose novel business models and people from non-financial services backgrounds look to set up banks. It is crucial that firms from a fintech background are subject to the same high standards as other applicants, while ensuring regulators do not stifle or discourage financial innovation which could bring significant benefits to consumers. As regulators, PRA and FCA do not seek to operate a "zero failure" regime and this applies to the authorization process for new banks as it does to the supervision of existing firms.
Keywords: Europe, UK, Banking, Authorization Process, Bank Licenses, Fintech, SM&CR, FCA, PRA
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