Financial service start-ups are facing record wait times for Financial Services Authority (FSA) approval, with the average wait now reaching 22.9 weeks, 9% higher than the previous peak of 21 weeks in Q2 2010.
City law firm Reynolds Porter Chamberlain (RPC) said approval times are taking longer because the FSA is assessing far higher numbers of business plans than before.
According to RPC, approval times are also stalling because of the internal "twin peaks" shake-up of the FSA, which has seen the organisation internally divided along the same lines that will operate when the FSA is formally broken up next year.
The law firm warns the delays continue to stifle competition.
Richard Burger, regulatory partner at RPC, said: "The current wait times could be putting a real brake on UK innovation. The time taken for approval can put off firms seeking approval, and this risks stifling competition in the market."
"The concern is that this will worsen once the two new regulators are in place, as systemically important financial services businesses will need approval from both of them."
RPC said this is an opportunity to overhaul the approvals process rather than take on the same system again.
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