The FSA and the Bank of England Publish Joint Review of Requirements to Enter Banking Sector

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Coming as part of a UK government initiative to increase competition within the banking sector, the joint review covers reforms to the authorization process and prudential requirements for new banks. Authorizations will be divided into two pathways, one suitable for firms which already have the means to set up a bank quickly, and the other involving a 3 stage incremental process intended for firms with fewer resources. This will mean that less well resourced firms can receive an initial (although restricted) authorization without having to commit to assembling the onerous capital, IT and infrastructure requirements.

Turning to prudential requirements, the UK’s forthcoming prudential regulator, the PRA, will take a pragmatic view towards setting the capital requirements for new banks. This will involve temporarily allowing new banks to hold leaner capital barriers than their larger, more established competition, in recognition of the lower systemic risk they pose.

A number of the reforms set out in the review have already been implemented by the FSA, and the remainder will be implemented after the UK financial regulation legal cutover date on April 1, 2013.