The UK Financial Services Authority (FSA) and the Bank of England have published their review result into barriers to new entrants to the banking sector.
In a bid to lessen the regulatory blockades, the market regulators have made considerable improvements to the regulatory requirements and authorization processes for new applicants of banking license.
This will further boost competitive challenge to existing banks, while paving the way to provide better services to the customers.
From 1 April 2013, the FSA will be replaced by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) and the new entrants will have to obtain clearance from both FCA – for conduct, and from PRA – for prudential issues.
Commenting on the new guidelines, FSA chairman Adair Turner said, "This has been a comprehensive review and we have made some bold changes, ones that respond to the difficulties faced by applicant firms."
"We believe the changes will make a significant difference to the ease with which new firms can enter the UK banking system and, as a result, enable an increased competitive challenge to existing banks."
As per the new guidelines, they do not require to apply for ‘add-ons and scalars’, which generally resulted in more capital requirements for start-ups than existing banks.
Under the new regulation, the new banks will have to maintain only the 4.5% minimum Core Tier 1 capital to comply with the Basel III rule against the current 7% to 9.5% requirement.
It has also slashed the liquidity requirements for all new banks and there will be no automatic new bank liquidity premium.
In order to upgrade the existing authorization process, both PRA and FCA have decided to introduce a significant level of up-front support to firms, during the pre-application stage, including a challenge session.
Some companies are not able to meet the six-month deadline as they are unable to raise the up-front investment, or because they have longer lead times in terms of raising capital or setting up the infrastructure.
Such firms can request for an alternative, three-stage route to authorization, particularly for the same enhanced pre-application support.
Some of these changes have already been applied and the remaining will come into force at legal cutover on 1 April 2013, when the PRA and FCA come into existence.