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
Previous ArticleBaFin Publishes Guidance on Outsourcing to Cloud Service Providers
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
HKMA, together with the Banking Sector Small and Medium-Size Enterprise (SME) Lending Coordination Mechanism, announced a ninety-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme.
The Advisory Scientific Committee of ESRB published a response, in the form of an Insights Paper, to the EBA proposals for reforms to the stress testing framework in EU.
MAS announced several initiatives to support adoption of the Singapore Overnight Rate Average (SORA), which is administered by MAS.
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.
PRA published the policy statement PS19/20 on the final policy for extending coverage under the Financial Services Compensation Scheme (FSCS) for Temporary High Balance.
EBA published the final draft implementing technical standards for disclosures and reporting on the minimum requirements for own funds and eligible liabilities (MREL) and the total loss-absorbing capacity (TLAC) requirements in EU.
EBA published an erratum for the phase 2 of technical package on the reporting framework 2.10.
EC published the Implementing Regulation 2020/1145, which lays down technical information for calculation of technical provisions and basic own funds.