Wait time for approval of new financial services firms continues to rise

The average wait for authorisation from the Financial Services Authority (FSA) is now 19.6 weeks, up from 17.3 weeks at the end of June 2011, according to data obtained from a freedom of information request by law firm Reynolds Porter Chamberlain (RPC).

Authorisation wait times had slowed as the FSA applied heavier scrutiny to new firms following the financial crisis, according to the firm, but had recently "started to improve". However, the figures show a steady increase in delays over the previous three quarters.

RPC warned that delays could increase further following the reorganisation of the FSA into a 'twin peaks' structure in April, to mirror the new regulatory framework planned to take effect from next year.

"The FSA has started a very complex internal restructuring and it will be interesting to see whether that has an impact on its ability to carry out its workload," said Steven Francis with the firm. "If there is a significant increase in FSA authorisation times in Q2 that will be a worrying sign that the twin peaks reorganisation is harming the FSA's productivity. New banks and insurers could be hit particularly hard by the shift to two regulators and the break-up of the FSA because they will need approval from both the new regulators."

Under the draft Financial Services Bill currently before Parliament the FSA is due to split into a Prudential Regulation Authority (PRA), housed within the Bank of England, and a stand-alone Financial Conduct Authority (FCA). The PRA will handle most of the day-to-day regulation and supervision of banks, building societies and insurers, while the FCA will regulate consumer credit as well as take on the FSA's current conduct and compliance role.

The PRA will have the power to designate certain investment firms for prudential regulation by itself rather than the FCA. However, the FCA will still consider conduct and compliance issues for those firms.

The regulator said in a statement that dual-regulated firms would only need to make one application for approval, and that its statutory timeframes for processing applications would not be affected by the changes. The FSA currently has a statutory obligation to determine applications within three months, but states on its website that it aims to process 85% of applications within five or ten working days of receipt depending on the nature of the application.

"While the FSA has increased its scrutiny of applications, timescales are also drive by other factors including the complexity of the business and the number of people seeking approval," it added.