Start-up banks in Britain will not need as much capital as their established rivals from April, Britain’s Financial Services Authority said in a policy move to boost competition.
Under pressure from lawmakers to increase choice in a sector dominated by four banks, the FSA unveiled sweeping changes to authorise new entrants within six months, a process that takes a year or more at present.
There will also be lighter capital requirements for the first three to five years, as long as the new bank can show deposits are insured and the company can be wound up easily without destabilising markets.
Additional requirements known as ‘add ons’ that were previously applied to cover uncertainties in start-up firms, will be scrapped.
A new bank would only need a core capital buffer equivalent to 4.5 per cent of its risk-weighted assets, a level that would be increased as the bank expands.
This is well below the seven to 9.5 per cent that applies to Britain’s ‘big four’ lenders who have 74 per cent of retail accounts – HSBC, Barclays, Lloyds and RBS.
There will also be reduced liquidity requirements, the FSA said in a statement yesterday.
“This has been a comprehensive review and we have made some bold changes, ones that respond to the difficulties faced by applicant firms,” FSA chairman Adair Turner said.
“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,” Turner added.
New entrants still face a big challenge in taking on existing lenders with branches across the country and whose payment systems the start-ups would still have to use.
The Bank of England’s director of financial stability, Andrew Haldane, has mooted a common payment systems platform that all banks could use to level the playing field for new entrants.
The changes are among the FSA’s last policy announcements before the regulator is scrapped on Sunday.
Approval of new banks will be shared by two new regulators from next Monday, with the standalone Financial Conduct Authority handling authorisation of staff, and the Prudential Regulation Authority at the Bank of England overseeing capital requirements.