UK grants FinTech a banking licence – another tier of regulation?

By Jim Bulling and Michelle Chasser

Has the age of the digital bank arrived in the UK? Following the authorisation of Atom Bank last year, 3 additional digital banks have been issued with banking licences by the UK Prudential Regulation Authority (PRA) since May 2016.

These new licensees are the result of the PRA’s focus in recent years on lowering the barriers to entry for new banks and promote competition in the UK. As part of this focus, in 2013, PRA lowered the initial minimum capital requirements for Small Specialist Bank applicants to €1 million or £1 million (whichever is higher), plus a capital planning buffer (CPB). PRA and the Financial Conduct Authority (FCA) also launched a New Bank Start-up Unit in January 2016 to assist applicants with the authorisation process.

The most recent licensee, Mondo, received a restricted licence this month. Under the restricted licence Mondo can accept aggregate deposits of up to £50,000 during its mobilisation period. The mobilisation period, which is expected to end within 12 months, allows new licensees to raise additional capital and finesse IT systems before an official launch and being required to comply with higher capital requirements of €5 million plus a CPB.

So far no FinTech business in Australia has been authorised to operate as a ‘bank’ by the Australian Prudential Regulatory Authority. In contrast to the UK experience the barriers to entry in Australia remain high as applicants proposing to operate as banks are required to have a minimum of AU$50 million in Tier 1 capital (e.g. shareholders’ common equity). Tyro Payments was authorised to be an Australian Deposit-taking Institution (ADI) last year, however, it has not been authorised to be a ‘bank’.

Without a facilitative approach similar to the UK it may be some time before we see the entry of the digital bank into the Australian market.