Since the creation of the PRA we’ve authorised 22 new start-up banks, and five in 1  Prudential Regulation Authority (2020), Consultation Paper 9/20: Non-systemic UK Banks: The Prudential Regulation Authority’s approach to new and growing banks – https://www.bankofengland.co.uk/prudential-regulation/publication/2020/new-and-growing-banks 2 See https://www.gov.uk/government/publications/ring-fencing-information/ring-fencing-information 3 Under the Financial Services and Markets Act 2000 (as amended), the PRA has two primary objectives: i) a general objective, to promote the safety and soundness of the firms we regulate; and ii) an objective specific to our regulation of insurers, to contribute to the securing of an appropriate degree of protection for those who are or may become policyholders. The PRA’s secondary objective is to act, so far as is reasonably possible, in a way that facilitates effective competition in the markets for services provided by the firms we regulate when they carry on regulated activities. See Prudential Regulation Authority (2018), The PRA’s approach to banking supervision, (October) 4 See https://www.bankofengland.co.uk/prudential-regulation/new-bank-start-up-unit. The approach to setting up a new bank has been broken down into different stages to help lower the barriers to entry. This includes early engagement with the regulator in the ‘preapplication stage’ and a ‘mobilisation’ stage where a bank authorised with restrictions is subject to less onerous requirements than a mature bank, allowing it time to secure further investment and build its capabilities before it becomes a fully functioning bank.
All of that should mean that firms face a more balanced choice between incurring the costs of specialist climbing equipment to climb a particularly steep bit of the mountain and strolling up a somewhat gentler hill instead. The mountain guide The consultation we’ve launched today introduces a new Supervisory Statement to make it much clearer how our expectations change over time for banks as they grow from ‘new’ to ‘mature’. Whilst most of this reflects how we have supervised firms in practice over the past few years, we have brought it all together for the first time so that the mountain path ahead is clear to you all. I won’t set out the entire supervisory regime now. But I did want to draw your attention to three changes introduced by the CP, all relating to capital, and which are designed to deliver a clear path from being a new bank at base camp to being established and on the way to the summit.   First, we are proposing to update how we calculate the capital buffer requirement for new banks. To date this has been based on an unspecified wind down cost calculation. But interpretation by banks has (understandably) been inconsistent, so we are proposing to move to a clear and consistent policy of setting the buffer as six months of operating expenses. This should be enough to allow banks time to find alternative sources of capital or to change their business model if investor support is lost.