Tuesday, 7 December 2010

How to enter the UK banking market (not for the faint-hearted)

Eric Daniels, the CEO of Lloyds Banking Group has said that the UK Banking sector is competitive, but just how easy it is to enter the market?

For a start each of your key team need to be personally vetted and approved by the FSA. This is no rubber-stamping exercise as has been seen by the number of people recently rejected by them. Secondly there is the need to get a banking licence.

Applying for a UK banking license is a complex process. You will need to complete a comprehensive set of application forms and provide the Financial Services Authority with a full set of supporting documents such as your business plan, risk management policy statements, compliance manuals and procedures and other information. As a new entrant that means that you will have had to have defined not only your operating model but in detail how you will perform all processes. Certainly not a short process, and that is before you apply for the licence.
“You will need to show the regulator that you have a clear and workable business plan. You will need to evaluate your capital requirements and to demonstrate that sufficient capital is in place.

Getting the FSA Approval and the Banking licence are only the first of the many hurdles for new competitors getting into the market. You either have to build the infrastructure for a bank from scratch (branches, technology, call centres, processing centres, hire the people, etc) or buy them (e.g. Northern Rock, Lloyds Banking Group's branches) with all the complications of separation from the mother ship. Combine these two together and you can see why it can take several years and a lot of capital before a new competitor can enter the market. Then the real fun starts, trying to persuade customers to transfer their banking relationship to the new bank whilst still making a profit.

You really, really need to want to enter the UK banking market to put yourself through all that pain and expense.

No wonder the incumbents aren't losing sleep about new entrants when the barriers are so high.

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