FT: Banking start-ups in UK put off by regulation

Banking start-ups in UK put off by regulation

By Brooke Masters, Chief Regulation Correspondent Financial Times Published: September 13 2009 23:47

Interest in starting new UK banks has mounted sharply in recent months among overseas banks and other financial services firms but fear of tougher regulatory scrutiny is deterring would-be applicants.

Advisers who help companies win UK banking licences say they are talking to nearly 30 potential applicants, more than triple the numbers they saw during and in the years before the financial crisis.

The interest comes from many quarters. Banks in Asia and the Middle East see the UK as a good place to dip their toes into the western banking market. Private equity firms are considering buying or starting banks, and UK business and consumer lenders think deposit- taking might be a source of new funds in tighter credit markets.

KPMG?s banking advisory unit is in discussions with 12 entities, including seven non-banks, compared with four or five companies in

2007, said Giles Adams, head of KPMG?s prudential regulatory team.

PwC?s regulatory practice is also seeing interest. ?People see there are opportunities in the banking space and they see starting a bank as a way to raise money for other purposes,? says Alex Shapland.

But few companies have filed formal applications, they say, because they believe the Financial Services Authority is setting higher capital ratios and liquidity requirements and is asking tougher questions about business plans.

The FSA has approved only one new bank this year, the China Construction Bank Corporation, which opened in June, compared with seven in 2008 and three in 2007. All were subsidiaries of overseas banks or had at least partial overseas ownership.

The statistics do not include European Union banks, which have a legal right to open branches in the UK, but regulators have been tougher on them.

?People are finding it difficult to get branch and subsidiary applications through the FSA. They are saying: come back in a year,? said Rob Moulton, a partner at law firm Nabarro who works with would- be applicants.

Lawyers say that in the wake of the collapse of Lehman Brothers, which swept all of its cash to the US overnight, the FSA is now demanding that EU branches keep more cash in the UK. The increase of UK deposit insurance to £50,000 per account might also be making regulators more cautious.

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