The Banking Start-Up Unit: Will it make a difference?

29 January 2016

On 20 January 2016, the Bank of England along with the Financial Conduct Authority announced the launch of a new bank start-up unit whose aim is to further bring down barriers to entry for new challenger banks. While the authorisation process of new banks itself hasn't changed, the creation of a focused unit is a promising new development.

Over the last few years, the UK authorisation process has improved considerably. The Financial Services Authority's barriers to entry paper, proposed a useful mobilisation option and lower paperwork burden for the application itself has proved popular with applicants, and I'm sure Authorisations officers as well. The Prudential Regulation Authority and FCA then chipped in with further clarifications on expectations about systems solutions, one of the biggest infrastructure costs and possibly the most complex aspects of building a bank. Knowing what's expected certainly helps make a slightly ambiguous process easier.

So the regulators are working together to make it easier for new entrants to become approved for banking in the UK. But has that really had an impact in the so called "challenger bank" market? Over the last year, we know Charter Savings Bank, Atom Bank and Tandem Bank have received their banking license and there are 20+ firms waiting in the wings. We also know that a few of our other clients are also due to receive their license in 2016 and thus it should be another good year for new bank entrants. So yes, I'd say making the application process more efficient has opened up the market for the new kids on the block.

The announcement of the bank start-up unit is not introducing any new material legislative or major policy changes but it is an important landmark moment which consolidates all the lessons learned by the regulators in recent years. Importantly, the PRA and FCA have taken on board the feedback which the last wave of challenger banks have provided, resulting hopefully in a more joined up and streamlined approach by the two regulators.

Crucially, this announcement has also given us further insights on how to help clients through the journey of building a bank and getting it a banking license. The new generations of domestic and foreign banking entrants with innovative business models and technology are feeling more optimistic than ever before about their banking license prospects. And that's good for business. 

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