FCA Authorisation: A beginner’s guide (And some handy tips for experts too.)

Here we look at the most crucial early step in setting a financial services firm. Obtaining FCA authorisation or licence to operate. This is a process that can take over a year and one that it is crucial to get right, get it wrong and you won’t even begin trading.

This blog should be relevant whether you are an experienced professional setting up a trading firm or a Private Equity Boutique. But also if you a programmer with great tech skills and an idea on how to improve Digital Finance and create your own FinTech unicorn. Here at RiskSave we have shared the authorisation journey with countless firms from both the Fin and Tech sides of FinTech and in many cases the approach will be the same.

The first Question you’ll ask: Do I need to be authorised?

Generally, if you are engaged in financial services in the UK you will need to be aware of the FCA and to follow its rules. Section 19 of the Financial Services and Markets Act 2000 (FSMA 2000), states that a person is prohibited from carrying out a regulated activity in the UK, unless they’re

·       an authorised person, or

·       an exempt person (such as an Appointed representative or tied agent.)

The relevant section of the legislation is Part 4A of FSMA 2000, so you will sometimes hear Compliance Consultants talk about 'Part 4A permissions'. This is to make themselves sound clever, but not a term you’ll need to unduly worry about.

In our experience the ingredients for a successful FCA application are Time, Money and more Time with extra effort at the beginning of the process reducing the need to expand the business model later with a ‘Variation of Permission’ or go back to the drawing board if your plans don’t match the regulatory environment you have to trade in.

Under the UK system you are permitted to provide Financial services by the FCA and if your application them is successful they will issue a Scope of Permission Notice. Before this happens though you will need to create a ‘Regulatory Business Plan’ meet the FCA’s threshold conditions and pass a Fit and Proper Test.

The threshold conditions are the minimum standards which are required by the FCA for firms to become and remain authorised. If you fail to meet the threshold conditions the FCA can deny, vary or cancel your (Part 4A) permissions.

In general for the FCA to regulate you. You must be have a UK presence, have appropriate resources for the activities you undertake and have a sustainable business model. If the FCA considers that any of these criteria aren’t met you won’t be able to operate.

In addition for key members of the organisation the regulator will investigate honesty, integrity and reputation, and check for competence and capability, and financial soundness. Ie if you’re notoriously dishonest or have been bankrupt financial services may not be for you.

How to prepare for authorisation.

Prepare, prepare, prepare for the best result. You should perform the regulatory analysis and confirm that you need authorisation and which regulated activities you will be performing. You can find further information and explanations in the FCA's Perimeter Guidance manual. Often known by the abbreviation PERG. If the information in here is bewildering or unclear a consultant such as RiskSave can help. You or your compliance team will prepare the authorisation application pack and gather the numerous supporting documents ready for submission.

At this stage you will need more than a basic idea and a team. You won’t need everything, but more is better. If you’re launching a fund. The fund structure, legals etc should be in place. If you’re launching a digital product you ought to a Minimal Viable Product (MVP) up and running. You could be asked to demonstrate the customer journey as soon as the application is picked up. So, a compliant product roadmap is helpful sooner rather than later.

Don’t worry if certain decisions aren’t finalised. But do worry if key commercial relationships aren’t in place. The FCA will want to see agreements with your key service providers and understand how you are building resiliency into your model. You should also be aware of the training requirements necessary for you and the team. Finally you should have a clear idea of what the final product will look like, as well as being capable of delivering. If this is all true you may be ready to SUBMIT

Which we’ll cover in Part 2: Submitting an FCA Application