Start-up banks will not need as much capital as their established rivals starting from April, the Financial Services Authority (FSA) said, in a move to boost competition.
Under pressure from MPs 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 currently takes a year or more.
Capital requirements will be lighter for the first three to five years as long as a new bank can show deposits are insured and that it can be wound up easily without destabilising markets.
Additional requirements that were previously applied to cover uncertainties in start-up firms will be scrapped.
A new bank will need a core capital buffer equivalent to only 4.5 per cent of its risk-weighted assets, a level that will be increased as the bank expands.
This is well below the 7 to 9.5 per cent that applies to Britain’s ‘big five’ lenders with 83 per cent of retail accounts – HSBC, Barclays, Lloyds, RBS and Santander UK.
There will also be reduced liquidity requirements, the FSA said. “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.