Glut of prospective challenger banks unfazed in drive for licence

According to a report published by The Telegraph, of the 20 banks applying for a licence, six are part way through the process and the other 12 are in pre-application discussions with the Prudential Regulation Authority (PRA).

The regulatory system around new banks starting up was relaxed in 2013 in an attempt to increase market competition, and the BoE has since approved the licenses of 14 new financial institutions.

The relative success of the start-up Metro Bank, which made its debut on The Bankers top 1000 international banks list this year, seems to have encouraged other challengers and the BoE set up its new bank start-up unit earlier this year in response.

The unit is a joint initiative from the PRA and Financial Conduct Authority (FCA) in order to provide information and support to aspiring start-ups.

Quoted in The Telegraph, the PRA’s outgoing chief executive Andrew Bailey said ensuring “the orderly failure of firms is possible” is just as important as making it easier for new banks to launch.

He added: “In my view, an important contributor to stable competition is to ensure that the orderly failure of firms is possible,” said Mr Bailey. “An industry in which firms cannot be allowed to fail is also likely to be one in which very few firms seek to enter and compete with well entrenched, established participants.”

Speaking about the merits of the start-up model, Metro Bank CEO Craig Donaldson, said: “Building the bank from the ground up has given us some great advantages. We have connected with local communities and driven our customer numbers and deposits by placing attractive stores in the right locations. We have also been able to create a new bank with the right values, superior service levels and state-of-the art IT infrastructure.”