Based on information obtained from the FCA the time taken to authorise a financial services business adding an additional business line has increased by 85% in the last two years - 18.5 weeks in Q4 2014, up from 10 weeks in Q1 2013.
The additional time taken by the FCA for theses approvals is most likely as a result of greater scrutiny by the regulator of firms' business plans and resourcing before giving its approval for firms' new offerings.
Under the FSA these types of approvals took little more than a month, but the current regulatory regime is much more stringent.
While the FCA is keen to prevent failures in financial services firms by putting into place stricter regulatory controls, firms are finding it increasingly burdensome to comply.
There is a natural tension between a firm's need to trade and the desire of the FCA to curb failures in firms. The major fault lines tend to relate to how much excess capital the FCA wants assigned to the new business line and the number of staff that new business line should have.
Where firms choose to set up new service line companies through subsidiaries, the FCA tends to demand high levels of capitalisation to insulate customers against potential losses.
Another area of friction with the regulator is the higher number of operational and compliance staff required in order to meet the regulator's expectations – with obvious cost implications for the business.
Delays by the FCA in approving firms to move into other areas of business are placing extra burden on firms and having a detrimental effect on competition in the financial services sector. If new permissions are being sought by established firms with experienced, approved managers, it is hard to see why new permissions should take so long.
Many of the applicants are smaller lenders, or innovative consumer finance providers. At a time when it is widely recognised that new sources of financing for SMEs and consumers are a priority for the UK economy, the timeframes for approval are important.
Starting in new business lines carries an inherent risk, which is a positive thing for the long term health of the market. This cannot be entirely regulated away. When the costs of obtaining permissions begin to become prohibitive consumer choice is likely to be damaged.
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