How to get a banking licence

An update on our meeting with the PRA and FCA

As you may know, BABB is in the process of applying for a UK license to become a regulated bank. Adam and Rushd are working with me on this, and we decided to bring you a more detailed update on our application.

We’re making good progress towards our goal of obtaining a UK banking license and we want to keep you fully updated, but we’re aware that the financial system in the UK is a bit obscure, as is the in-depth due diligence process we’re currently working through.

So, in this post I want to lay out what the application process involves and what the steps are to obtain the license, so that you can better understand what stage BABB is at and what we’re working on next.

The process

There are two ways to become a regulated bank in the UK.

Option A: you develop everything you need to operate as a bank in advance, and then apply for a full license.

Option B: you get most of the requirements in place, apply for a restricted license and start operating with a small customer base, then refine your operations and have the restrictions lifted.

This helpful diagram from the FCA shows the process in a bit more detail:

We have decided to pursue Option B, as we believe this is the best route to getting licensed as soon as possible, with the understanding that we can transition to Option A part-way through the process if that route starts to look more promising.

Where we are

In both cases, there is a lengthy pre-application phase in which the FCA and PRA provide a huge amount of feedback and support. We have decided to take full advantage of this support to create the strongest possible application.

We are currently coming to the end of this phase (in yellow in the diagram) and nearing the formal submission of our application for a banking license.

By doing as much preparation as possible in this phase, we’re putting the groundwork in place to make it more likely that the process will be fast and smooth once we submit our application.

What’s happened so far

So far, we have had two meetings with the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) — the pre-application meeting and the first of two planned challenge sessions.

For these meetings, we put together a seriously hefty document which covers BABB’s proposition and how we plan to put it into action.

During the meetings the PRA and FCA were keen to know (in depth):

• why we want to be a Bank
• what the proposal is and how we will engage with the types and volumes of customers that we have planned for
• what the customer journeys are (how people will use the app, card and platform)
• how we will provide a safe and secure service to our future customers
• how we onboard customers, check that they are who they are and ensure that they are not performing illegal activities
• how the company will work and what the structure is

and much more…

What happens next

We will receive formal feedback from the most recent meeting in the coming weeks. As with all new applicants, we will need to provide further information on some aspects of our application and proposition.

We’ll need to get stuck in with ever more granular work to refine and clarify our plans and the services we will provide. Once all of this information is in place, we’ll have a third meeting with the PRA and FCA to go through and discuss everything we’re planning to submit for our application.

We hope to have this meeting in the next couple of months, depending on when the relevant people are available. After that, we can go to the next phase and submit our application, which moves us onto the second stage of Option B, “Assessment and Authorisation”.

The bigger picture

From submitting the application it can take up to 12 months to obtain the full licence but we’re aiming to make it in 9 months. To help minimise the time achieving a licence we are ensuring we get our application detail right and spending more time in the pre-application phase to refine our application.

If our application is successful we will be authorised with restrictions, which means we will be operational with a small number of customers. This period of operating with restrictions gives us time to mobilise and firm up the remaining details of our application, so that we can obtain the full licence.

Parallel to our efforts in the UK, we are also engaging with various regulators in the EU and making progress towards obtaining a European banking license. This will be an asset alongside a UK banking license and give us greater flexibility post launch as we grow and expand our customer base.

Questions?

I’ll be doing an “office hours” session on Telegram and an AMA on Facebook Live next week — times and dates TBC but look out for updates.