* New start-ups could begin trading within 6 months
* Reduced capital requirements for first 3-5 years
* MP Tyrie says review is 'step in right direction'
* Metro Bank founder says competition will improve banks
* UK plans new regulation of payment systems
By Huw Jones and Matt Scuffham
LONDON, March 26 Start-up banks in Britain will
not need as much capital as their established rivals starting
from April, Britain's Financial Services Authority (FSA) said,
in a move to boost competition.
Under pressure from lawmakers to increase choice in a sector
dominated by five 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
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 percent of its risk-weighted assets, a level that will
be increased as the bank expands.
This is well below the 7 to 9.5 percent that applies to
Britain's "big five" lenders with 83 percent of retail accounts
- HSBC, Barclays, Lloyds, RBS
and Santander UK.
There will also be reduced liquidity requirements, the FSA
said on Tuesday.
"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," FSA Chairman Adair Turner said in a statement.
Andrew Tyrie, who heads a committee of lawmakers examining
standards within the industry, said the FSA's plans appeared to
be a step in the right direction.
"The lack of competition in banking has been reinforced by a
regulatory regime favouring large incumbents. Customers have
lost out as a result," he said.
The Parliamentary Commission on Banking Standards will
publish its own proposals for stimulating competition in its
final report due in May.
NEW LENDERS ALREADY EMERGING
New entrants have already begun to surface in the wake of
the 2008 financial crisis, looking to fill the gap as the big
banks focus on shrinking their balance sheets and building up
capital reserves to meet new regulations.
Metro Bank became the first new high street lender to emerge
for over 100 years when it was granted a banking licence in
2010. Other new challengers such as Aldermore and Shawbrook have
also opened for business but have opted not to open branches.
Metro Bank's co-founder and chairman, Vernon Hill, welcomed
the FSA's plans and said the move towards making a quicker
decision on a banking licence was the most significant proposal.
"The biggest problem with the approval process is you had to
get the entire bank up and running including the IT system
before they gave you approval, so we had to invest a very
substantial amount of money pretty much out of my pocket while
we were all at risk," he said in an interview.
Britain's finance ministry said on Tuesday it was proposing
new rules to open up banks' payment systems and stimulate
competition. Under one proposal, the regulator would set a 'fair
price' at which big banks would be obliged to provide access to
their payments infrastructure to smaller rivals.
Philip Monks, chief executive of Aldermore, also said the
FSA's initiatives would make applying for a banking licence less
onerous and would help new banks compete effectively.
"I think it's good to give start-up banks more certainty in
the process and to streamline the process," Monks said.
"It's all very well to have a number of new banks in the
marketplace, but when they do get into the market, what you need
to do is ensure that they have a level playing field," he added.
Aldermore was founded in 2009 with backing from private
equity firms AnaCap and Morgan Stanley Alternative Investment
Partners. Its loan book now totals over 2 billion pounds, and it
is the sixth-largest lender in the Bank of England's Funding for
Lending Scheme (FLS), which provides cheap funds for lending to
small firms and households.
New entrants still face a big challenge in taking on
existing lenders, which have branches across the country and
whose payment systems the start-ups still have to use.
Omar Ali, head of the UK banking advisory team at
accountants Ernst & Young, said the changes were unlikely to be
enough on their own to increase competition.
"Whilst consumers are willing to shop around for secondary
banking services like loans, they remain reluctant to move their
current accounts and savings to newer players," he said.
The changes are among the FSA's last policy announcements
before the regulator is scrapped on March 31.
Approval of new banks will be shared by two new regulators
from April 1, with the standalone Financial Conduct Authority
handling authorisation of staff and the Prudential Regulation
Authority at the Bank of England overseeing capital