Having in mind to set up a bank in the United Kingdom?

Here’s our step-by-step guide how to start banking in the UK smoothly 

Companies entering or expanding into the UK’s banking sector should be aware of the fact that the authorisation process in this country is far from being easy. It is complex, costly, and time-consuming. Nevertheless, new banks are popping up, and demand for their services is at all time high, so why not give it a try? If you have firmly decided to set up a British bank, our guide will increase the chances of success and reduce possible risks during the registration and follow up processes. 

Start a bank in the UK following these essential steps:

Step 1.  Business Plan

A new bank is very similar to a startup. However, even more than a regular startup, the bank needs to gain the trust of regulators, regardless of the country of registration of the bank.  A lever of influence in this situation is a business plan worked out to the smallest detail.

The business plan for a bank, as a minimum, should contain:

• statements on the financial position of the owners (holding or individual),
• a description of each of the business areas,
• registered capital,
• minimal liquidity level
• risk assessment.

However, in order to obtain a banking license in the UK,  your business plan will go through a thorough screening, and most probably will be rejected if not containing the following points: 

1. a persuasive explanation of why you want to become a bank;
2. a clear business model, i. e. your product range, and your target market;
3. sources of funding;
4. financial forecasts including balance sheet, income statement etc.;
5. corporate governance, i.e.  the governance structure, board, management team;
6. a detailed overview and timeline of your plan to set up a new bank;
7. KYC and Anti-Money Laundering procedures and more.

Of course, a business plan should show your desire to work, has to be be creative and innovative, but also it must prove that you understand what you are doing, you have experience and no problems with the law.

Step 2. Authorisation

It’s not a secret that the banking sector is one of the most regulated and controlled in the world. Each step of the bank is studied thoroughly by regulators and auditors. Certainly, new players entering the market are in focus. In the UK, two separate financial regulatory authorities, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are in charge of the new banks authorisation processes, as well as the New Bank Start-up Unit (NBSU), which has been recently set up in the framework of the existing regulators for special supervision of the new players. 

In the last few years,  the UK’s financial regulators have made unprecedented steps towards the ‘newcomers’, which resulted in removing some of the barriers that had made it so complicated for new banks to open in the past. Nevertheless, starting a bank remains far from easy, 

International banks can open a branch in the UK, and operate through a branch or a subsidiary. But still you will need to be authorised by PRA. 

Even if your firm has already been authorised in the UK, it doesn’t mean that you can avoid the authorisation process  - deposittaking is the key, and you will have to add it to your permissions to be permitted to collect deposits from the public.

However, before you apply, it is highly advised by the UK regulators to go through a series of pre-application meetings with the regulator’s officials. These are specifically designed to help a prospective bank to better understand the authorisation process and identify the possible concerns on early stages. 

Step 3 (optional). ‘Mobilisation’

Start-up banks may use an optional authorisation regime which was called ‘Mobilisation’ by the financial regulators. This regime is highly recommended for those banks who have no upfront investments, lack proper IT structure and need some time to build the necessary infrastructure and recruit professional staff.  It means that you will have to take steps to build-out your bank and be fully ready to start your operations before obtaining a banking license in Britain.  

Before that, you will be operating in a status of a firm providing financial services with limited scope of operations. For example, the level of deposits you can accept will be limited to £50,000 in total. The cap will be removed when you get a banking license and become a fully operational bank. It is anticipated that the ‘mobilization’ period lasts no longer than 12 months. Within this period, firms are usually able to complete all activities that enable them to start trading fully.