Written by Matt Raver
We have seen a concerning trend of firms in the FCA’s Temporary Permissions Regime hitting a roadblock due to the FCA being uncomfortable with their proposed set-up post-TPR.
The Temporary Permissions Regime was set up to enable EEA firms and funds using the passporting regime to transition to the UK full regulatory regime. Among other things, this enables branches of EEA firms operating in the UK, to continue to operate in the UK post-Brexit. The process involves the organisation making an application to become FCA authorised during a ‘landing slot’ – a timeframe prescribed by the FCA, which then processes the application. All applications must have been received by the FCA by the end of 31 December 2022.
Where the application is unsuccessful, the organisation is required to cease regulated activities in the UK.
Unlike a UK branch of an EEA firm, a FCA authorised firm requires an individual to perform the compliance oversight function (SMF16) (this individual is usually called the Compliance Officer). The organisation is therefore required to identify that individual as part of the application process.
This can be challenging, in particular where the UK operation is small, and it would be impractical for a ‘dedicated’ UK-based compliance professional to be hired. Oftentimes, there is no suitable UK-based individual to perform compliance tasks alongside other tasks, such as a Chief Operating Officer.
There are two potential solutions to this. However, the FCA has indicated that they are uncomfortable with each.
The first is where the compliance oversight function is conducted by someone outside of the UK. Operationally, this can be a viable proposition where the individual is a compliance professional and acts as ‘Head of Group Compliance’ (or similar). With improved technology, the risks associated with having a non-UK compliance officer are reduced. Even so, the FCA doesn’t always see it that way.
The second is to contract with an external individual that acts as Compliance Officer. This is attractive where the compliance tasks take a small amount of time to execute, e.g., 5-15 hours a week. Key to this is the management of conflicts of interest, for instance given that the individual may be performing a similar function at other financial institutions. However, the FCA has significant issues with this model.
Actually, there is a third solution, which may seem radical – withdraw the FCA application and instead perform regulated activities at a ‘Hosting Platform’.
A Hosting Platform is a FCA regulated firm that enables other firms to conduct certain FCA regulated activities. The Hosting Platform is responsible for the activities of the other firms. The Compliance Officer of the Hosting Platform is effectively also the Compliance Officer of the other firms.
There is no FCA authorisation process associated with joining a Hosting Platform. There are other processes involved, such as a notification process and registering individuals. However, compared to the FCA authorisation process these can be achieved relatively quickly.
Our Regulatory Hosting Solution might be the answer. We offer two solutions for institutional investment firms – one for investment advisers, deal arrangers and marketers and the other for asset managers/alternative investment fund managers. Click here for further information.