BOE Article Explains Process for Bank Authorization in UK
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.
Related Links
Keywords: Europe, UK, Banking, Authorization Process, Bank Licenses, Fintech, SM&CR, FCA, PRA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
ESMA Publishes Data for Systematic Internalizer CalculationsRelated Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards