How to become authorised with the FCA
Posted on 20 Jan 2021
Laven has completed hundreds of FCA Applications on behalf of our clients and as such we know the difficulties that can arise. By following the guidance below you can ensure your application proceeds through the process as quickly and smoothly as possible.
If you do require some extra support with a new or currently ongoing FCA Authorisation, Laven’s experienced team would be more than happy to help. Click here to find out more.
1. How do I get FCA authorisation?
Applicants are expected to carry out a certain amount of preparatory work before they start to fill in and submit the relevant application forms to the FCA. The FCA expects the applicant firms to be ready to meet their threshold conditions when they submit the application.
Below are some key points that an applicant firm should consider before submitting an application to the FCA’s Connect online platform:
Type of business
The regulated activities a firm can apply for are set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544 (“RAO”). For more information on regulated activities, see the FCA link here or the FCA’s Perimeter Guidance manual (PERG).
Before the FCA will authorise a firm, they must be satisfied that the applicant firm can meet and will continue to meet certain minimum standards, called threshold conditions and that the persons running the firm are fit and proper.
The business plan should include (but not be limited to) the following:
- A full explanation of the business, its background (including its legal structure) and what it is intending to do.
- The firm’s objectives (for example, business opportunity, market share, aims or assets under management).
- Any long-term strategy and expansion plans.
- A clear view of the firm’s target market, key customers, distribution, products and pricing.
- The experience a customer will have of the business from day one.
- Details of the firm’s intended business strategies, fees and remuneration arrangements, governance framework, and key personnel.
- What experience the firm’s principals have of the type of regulated activities it wants to conduct.
- The employment background, experience and relevant qualifications of all individuals who will be performing senior management and certified functions.
- Financial projections for at least one year or three years, depending on the type of regulated activities.
- Any key dependencies and business risks.
- The firm’s marketing strategy.
- Details of any outsourcing plans or other key operational matters (i.e. IT infrastructure).
- Analysis of key conduct risks.
Minimum regulatory financial requirements
The FCA imposes capital and liquidity requirements on regulated firms. These requirements are set out in various FCA sourcebooks: GENPRU, BIPRU, IFPRU, IPRU-INV, and are linked to the Firm’s regulated activities.
The applicable capital requirements can differ vastly between different permission types and firm-specific circumstances but all firms have initial capital requirements which they have to meet at the point of authorisation. Following the authorisation, the initial capital requirements are likely going to be replaced by variable capital requirements which are based on the Firm’s fixed overheads expenditure or credit and market risk exposures. Many FCA authorised firms are required to add additional capital buffers based on their own firm-specific risk assessment.
Systems and controls
The FCA’s Senior Management Arrangements, Systems and Controls (SYSC) lays out the responsibilities, the general organisational requirements, compliance, internal audit, financial crime, risk control, outsourcing, record keeping and conflicts of interests. These requirements need to be clearly laid out in the applicant firm procedures and compliance monitoring program.
The firm needs to determine which people in the firm will have senior manager function (SMF) and take reasonable care before submitting a senior manager application to ensure that the relevant person is fit and proper to perform one or more SMFs. Broadly, fitness and propriety cover the candidate’s honesty, integrity and reputation, competence and capability and financial soundness.
Firms are required to have knowledge on whether the candidate has obtained a qualification, has undergone or is undergoing, training, possesses a level of competence, or has the personal characteristics required by the FCA.
Firms should therefore undertake appropriate due diligence on the candidate; this includes seeking regulatory references from previous employers. It is also likely to include checks on the candidate’s academic and professional qualifications, criminal record, credit and directorships.
For further details on the type of authorisation requirements, check the relevant FCA webpage for that specific authorisation type, With certain application types, it is possible to organise a pre-application meeting with the FCA. If available, this option could be useful in making sure that the firm is ready to apply for authorisation. This is recommended especially when the Firm’s business model is not a common one.
Many Fintech companies which require FCA authorisation to conduct some of their business activities have used the FCA’s Sandbox program to launch their business in a regulated environment. For more information on this click here.
2. Who needs FCA authorisation when providing financial services?
A person must be authorised (or exempt from the need for authorisation) if they carry on, or purport to do so, a regulated activity in the UK. This is referred to in Section 19 of the Financial Services and Markets Act 2000 (“FSMA”) to as the “general prohibition”.
An application for authorisation (also referred to as a Part 4A permission) to carry on one or more regulated activities may be made to the FCA by a person. Section 55A(1) of FSMA defines a person as:
- an individual;
- a body corporate;
- a partnership; or
- an unincorporated association.
A small number financial services firms, which are not banks, will also have to be regulated by Prudential Regulation Authority (“PRA”) which also acts as the prudential regulator of the banks in the UK. These firms are dual regulated by both the FCA and PRA, and are typically considered to be large enough to pose a potential systematic risk to the financial markets.
The FCA is also the UK regulator for other regulated activities such as Consumer Credit and Claims Management activities which have their own authorisation and ongoing compliance requirements.
3. Authorisation vs Registration
Some firms may only need to be registered with the FCA rather become fully authorised. This usually means that their activities are considered to be lower risk, and therefore, requiring less supervision.
- Small Registered UK AIFMs;
- Some payment services providers;
- E-money institutions;
- Some friendly and registered societies (co-operative societies, community benefit societies, and societies previously referred to as industrial and provident societies).
- Consumer buy-to-let (CBTL) firms; and
- Working men's clubs.
4. Who is exempt from the FCA authorisation regarding financial services?
Some firms engaged in regulated activities do not, depending on the circumstances, need to be authorised by the FCA. These can include:
- professional firms, such as solicitors, accountants or actuaries; and,
- ‘appointed representatives’ working on behalf of firms that are already authorised.
There are some circumstances where activities that would normally be regulated are unregulated. These can include certain overseas activities, however, you need to be absolutely sure you qualify for an exemption or exclusion from being authorised. We strongly recommend seeking legal advice as a wrong assessment can lead to committing a criminal offence.
The exemptions and exclusions listed above are not exhaustive. Further information can be found in the Perimeter Guidance manual under PERG 2.7 and 2.8.
5. How much does the FCA registration cost?
When you submit an application to the FCA, you must pay the application fee in full. This fee is non-refundable and the FCA does not issue invoices for it. The price will vary depending on the type of application and the firm applying for the authorisation.
The FCA often splits the applications in to three categories: straightforward, moderately complex, and complex. The more complex the application is, the higher the application fee is. Depending on the application type the fee could be anywhere between £1,500 and £5,000.
The FCA fee is paid using a credit or debit card via the FCA Connect platform before submitting the application. You will not be able to submit an application without paying the fee and the fee is non-refundable.
The authorisation application fee is a one-off. In addition to this fee, the firm will also have to pay the FCA an annual fee each year. In the first year after being authorised, the firm will pay only a proportion of the fee (based on the number of months remaining in the fee-year).
For further details on the FCA annual fee, please find the FCA fee calculator here.
6. How long does it take to be FCA authorised?
The preparation of the FCA application documents can take a few weeks, depending on how promptly the firm collate the necessary information. Once the application is submitted, it takes approximately 2-4 weeks to be appointed an FCA case officer. It could take between 3 – 6 months for the FCA to complete their review of the application. but the FCA has up to 12 months to review and decide whether they should authorise the firm or not.
7. How to withdraw an FCA authorisation?
To make the application process as smooth as possible, make sure you submit the required supporting documents and respond within the requested deadlines.
The firm will need to explain what will happen to any liabilities it has, or which may arrive in the future. And if the firm holds client money, it must supply auditors’ reports or similar evidence regarding any past client money balances
If the firm is a fund manager, it must terminate the funds before applying to the FCA to cancel its authorisation.
If the application is submitted correctly and considered complete, a case officer has 6 months in which to make a decision. If the application is incomplete it may take up to 12 months to process. The FCA does not charge anything for cancelling an authorisation. However, the firm will still have to pay the full annual fee for the financial year in which the firm apply for cancellation.
If a firm submits its cancellation application to the FCA before 31 March (or before the last day in February, if the firm is also regulated by the PRA), the firm will not have to pay the annual fee for the following financial year. If, however, the firm’s business continues to operate for 3 months beyond this deadline – that is to say, past 30 June – then the firm will have to pay the annual fee for the financial year.
For further details, please find here the FCA’s guide for firms to cancel their FCA authorisation.
8. What is the Firm Reference Number?
The Firm Reference Number or FRN is a unique identifier assigned to every authorised firm. These FRN numbers are used in correspondence with the relevant regulator, applications, and when searching for information on authorised firms on the Financial Services Register.
9. How to check whether a firm is authorised?
In the UK, nearly all financial service activities must be authorised by the FCA, or the PRA. You can search the Financial Services Register (the “Register”) for firms, senior managers, and their regulated activities
Always check the firm you are dealing with is listed on the Register. It lists all the firms and current or previously approved individuals involved with regulated activities. It shows whether a firm you are using, or plan to use, is regulated by the PRA and/or the FCA. You can find out what they are regulated to do and your protections when doing business with them.
Since 14th December 2020, under the Senior Managers and Certification Regime (SM&CR), the FCA will begin publishing and maintaining a separate directory of certified persons, so consumers and professionals can check the details of any individual employees such as investment advisers who claim to work for FCA authorised firms.
Laven and FCA Applications
At Laven, our consultants are on hand to help identify the actions your firm needs to take to ensure you are compliant with new regulations and aware of all the risks outlined in this report. Whether this is through assisting with new policies and procedures that need to be put in place or providing online/in-person training for staff to make them fully aware of the regulatory obligations.
Laven has also built Laven Tech, a unique Regulatory Technology (RegTech) solution that leverages advanced technology combined with our vast subject matter expertise. Our RegTech solution is designed to assist fund managers, service providers and investors to meet today’s growing demands.