Written by Matthew Raver
Managing Director
A UK investment firm, such as an asset manager, investment adviser or broker, falls under the remit of the Financial Conduct Authority (‘FCA’). Becoming FCA authorised requires submitting an application which must be approved by the FCA before the activities can be partaken. The process is complex, and there’s no getting away from the fact that there’s a lengthy application process to become FCA authorised. Is it 3 months? 6 months? 9 months? A year? What is that magic number?
In recognising that there are a few myths that continue to pervade the industry around this topic, we wanted to publish an updated synopsis to help manage expectations…
Myth #1: It’s easy – I’ll just do it myself:
The application forms are publicly available via the FCA website. There is also guidance on the additional documents that are required, including the ‘regulatory business plan’, financial model, legal agreement, compliance policies and procedures and documentation related to individuals and business owners.
Unfortunately, the forms and guidance do not provide an indication as to how the FCA would like the application to be completed, and the FCA’s viewpoint in this regard changes over time.
The endgame of the application process is to demonstrate to the FCA that the applicant firm meets the threshold conditions for being FCA authorised. These conditions, which include ‘location of offices’, ‘effective supervision’ and ‘adequate resources’ are generic and to a large extent the application process is an exercise in reading ‘between the lines’ to untangle – at any given time – the FCA’s criteria for deciding whether or not a firm meets these conditions.
The FCA is currently taking a very thorough approach to reviewing applications, which may involve asking detailed and unexpected questions, which are not always intuitive. Currently, it’s likely that the FCA will request an interview with a key individual such as the Compliance Officer, and oftentimes the purpose of this is to ‘test the knowledge’ of the individual to determine whether they are competent to perform the role.
There is a focus on mitigating the risk of harm that an applicant firm may cause, once authorised. This can create a potential tension with another vital FCA objective – fostering competition within the financial services sector. A key challenge for the regulator is to find a balance that ensures a healthy financial market without creating unnecessary hurdles for new entrants.
Our team of senior FCA compliance consultants has helped gain authorisation for over 500 firms to date and help to ensure that you get authorised the first time round, assisting with key proposals, plans, documents and the submission; and doing so in an efficient and timely manner. You’re in the investment game after all – why wouldn’t you invest in professional expertise for your FCA application, to ensure the smoothest and fastest turn-around possible?
Myth #2: It only takes 3 months to get FCA Authorised:
If that’s what you’re being told, you’re setting yourself up for disappointment!
The time it takes the FCA to process an FCA application ebbs and flows, albeit they have a statutory obligation to process within 12 months. Our FCA applications team has been project managing these applications since 2003; in their experience unfortunately the FCA process time is currently at its slowest, aside from in the immediate aftermath of the 2008 financial crisis when it was taking 6 months just to appoint a FCA case officer to the application! So, whilst the FCA processing time might have been 3 months in the past, that’s certainly not the case at present.
So, how long does the whole process really take?
The process is broken down into four stages:
- Drafting the submission,
- Appointment of first FCA Case Officer for review after submission of application,
- Appointment of second FCA Case Officer for second review of application, and
- Authorisation.
In fairness, the time taken to draft a submission can vary substantially depending on the availability of the required information from the applicant – in our experience, this can vary from a few weeks up to a few months. The rest of the process is wholly reliant on the FCA and these are the average times we’re seeing in reality[1]:
- Time until appointment of FCA Case Officer, from date of submission: A further 2 ½ months
- Time until appointment of second FCA reviewer [2], from appointment of Case Officer: A further 4 ½ months
- Time until Authorisation, from second FCA reviewer appointment date: A further 3 ½ months
Hence, once an application has been submitted, it’s likely to take on average just over 10 months before your submission is FCA Authorised.
Considering that drafting your submission can take up to 2 months, the entire process can therefore take up to a year from start to finish.
Myth #3: You can submit a ‘skeleton’ application to the FCA and provide the FCA with additional detail later on in the process:
The FCA expects all applicant firms to be ‘ready, willing and organised’ to commence regulated activities. A half-completed application sends the signal that the firm does not have a coherent plan for becoming authorised and conducting regulated activities once authorised. The worst-case scenario is that the application would need to be withdrawn and re-submitted.
Notwithstanding this, certain aspects can be provided at a later date, e.g. the identity of the firm’s auditor, or final versions of fund offering memoranda.
Myth #4: My consultant has told me that they know someone at the FCA and therefore my application will be ‘fast tracked’:
This is simply untrue. The FCA will aim to deal with all applications fairly and in due turn.
Myth #5: There is no alternative to FCA Authorisation:
Unfortunately, a longer application time creates logistical problems for firms seeking to become FCA authorised. For example, start-up firms are finding it more difficult to recruit for key positions, or provide the comfort to their initial clients or keystone investors that they will be able to commence regulated activities in a desired timeframe. Higher start-up costs often have negative implications from a regulatory capital perspective.
Luckily, for many firms, including asset managers and investment advisers, there is an alternative to FCA Authorisation, which involves operating under an FCA Regulatory Hosting license and leveraging the value and expertise of the Regulatory Host at the same time. This solution can be turned around within 2 to 3 months.
Dependent upon activities conducted, either your staff members would be ‘seconded’ into the Regulatory Host, or your firm would become an Appointed Representative of the Regulatory Host.
Regulatory Hosting is attractive to firms that want to get up-and-running quickly, and within an organisation offering a robust regulatory infrastructure, who takes care of risk, compliance and operational needs, and is responsible for the regulatory capital requirements.
This can either be a long-term quick-to-market solution where you remain seconded into the Regulatory Host or become an Appointed Representative of the Regulatory Host indefinitely, or a medium to short-term solution to expedite getting to market soonest, whereafter you proceed with your FCA application in parallel, and move off of the Regulatory Hosting platform when you receive your FCA Authorisation. Based on the lead-times mentioned above, this can gain you as much as 10 months of trading-time.
You can, however, ensure the fastest possible solution to becoming FCA Authorised by appointing experienced FCA consultants to steer you through the process, or by using a reputable Regulatory Hosting platform to expedite your route-to-market. At RQC Group, we offer both FCA Authorisation and Regulatory Hosting solutions.
[1] FCA applications for UK MiFID investment firms (agency asset managers), UK MiFID investment advisory firms and UK Alternative Investment Fund Managers.
[2] Per the FCA’s processes, once the initial case officer has no more queries, they prepare a ‘recommendation’ paper to a more senior reviewer, who typically either agrees with the recommendation (if this is to approve the application) or asks the case officer to pose additional questions. However, the number of additional questions raised by the senior reviewer has risen significantly lately, potentially extending the application process for firms.
