Financial News

  • 26 February 2013, 11:58

Treasury Row With FSA Delays New Bank Rules

New rules designed to sweep away barriers to entry for start-up retail banks are being held up by tensions between the Treasury and the City regulator over the scope of the reforms.

I have learnt that the Treasury and the Financial Services Authority (FSA) are embroiled in a disagreement over the length of time that the regulator should take to authorise new banks which have applied to it for a licence to become operational.

People familiar with the dispute said the Treasury was pushing for the authorisation period to be reduced to three months, a timeframe that FSA officials are understood to have argued is unworkable.

The disagreement is understood to be a factor in delays to an FSA discussion paper that will set out proposals for changes to the regulatory framework for new lenders.

Originally due to be published in January, the paper is now expected to see the light of day next month. George Osborne, the Chancellor, told the Parliamentary Commission on Banking Standards on Monday that the proposals would be set out "soon".

The tensions between the FSA and the Treasury underline the desperation of Mr Osborne to see the emergence of a new wave of credible retail banks to challenge what he has called the "oligopoly" of the established high street banks.

Among the central proposals contained in the paper will be a relaxation of the requirement for new lenders to hold comparable capital buffers to established banks during the early stages of their existence.

Under current rules, new banks must significantly increase the capital they hold during their third year of operation, a measure that the FSA will propose is abolished.

Another idea will be for a new pre-submission period that enables prospective bank applicants to work with the FSA outside a formal process, which will enable discussions to take place without the bureaucracy that has typically shrouded such negotiations.

The existing capital regime has been criticised as excessively onerous by some executives who have attempted to launch banks in the aftermath of the financial crisis.

Only one new high street lender - Metro Bank - has opened its doors in recent times, and ministers are keen to encourage further efforts to assail the dominance of the likes of Barclays, Lloyds Banking Group and Royal Bank of Scotland.

A number of other projects, including a telephone and internet-based lender called Home & Savings Bank, have failed to see the light of day because of capital-raising difficulties.

 

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