London – a fabulously wealthy city dominated by a thriving financial services industry. Ambitious firms seeking to enter the highly regulated sector often find their business plans thwarted by a stagering amount of paperwork for authorisation. As the conduct regulator, the Financial Conduct Authority of the UK, or FCA, demands a high level of commitment and cooperation from the firms it regulates to ensure optimal market functionality. Their operational objectives rest on three prongs: to protect consumers, to safeguard and enhance the integrity of the financial markets, and to promote competition in the interest of consumers. How would the future of the financial services industry look like in the looming storm that is Brexit, and would the FCA have to adjust its expectations accordingly?
Background of the FCA
The FCA was established in 2013 (together with the Prudential Regulation Authority (PRA)) to take over the responsibilities of conduct and prudential regulations from the Financial Services Authority (FSA). It is now the conduct regulator of more than 59,000 financial services firms and markets in the UK and the prudential regulator for over 18,000 of those firms. Operating as an independent public body financed through fees chargeable to regulated firms, the FCA is accountable to the Treasury, which is, in turn, responsible for the UK’s financial system, as well as to the Parliament. Any firm carrying out an activity regulated by the FCA must be authorised by or registered with the authority, unless they are explicitly exempted.
The primary difference between authorisation and registration of a firm in the UK lies in the fact that registration requires less information from the firms. The infographic below highlights which requirement is to be fulfilled according to the type of service a firm offers.
Application for Authorisation in the UK
The general time taken for the acknowledgement of authorisation is between six and 12 months, depending on the completeness of the application. DesFran’s principal consultant in the UK, Nicholas Lee, provides insights on the application process.
“Like any regulatory body, the FCA seeks to be as transparent as possible in its application process. Checklists, definitions, and detailed information are listed on the FCA website in an attempt to eliminate ambiguity,” Nicholas explains. One flaw to this otherwise seemingly perfect approach is the case officer assigned to each case. “Every case officer has their own checklist and boxes to tick. Although every application is determined by its own merits, the officer’s experience and knowledge can certainly influence the extent of documentation required,” Nicholas further clarifies. “The checklists we see online attempt to cover all bases. Unfortunately, in the process of doing so, it may simply be listing the minimum documentation required to fulfil a particular section of a broader criteria.”
Firms will be evaluated on their readiness and willingness to comply “on a continuing basis with the [regulatory system’s] requirements and standards” throughout the assessment process. The definitions of what constitutes as ready, willing and organised are listed on the FCA website, together with what may be regarded as positive indicators by case officers. A demonstration of willingness to comply and cooperate to address any deficiencies ranks high on the approval scale.
It appears that the FCA has adopted a similar stance to “ignorance of the law is no excuse” when setting out its requirements. A fitting analogy would be that of a driver’s licence where the licensee is expected to comply and keep themselves up to date with traffic regulations. Firms must ensure they possess all supporting documentation and have the necessary arrangements in place to comply with regulations from the day they are authorised.
Upon submission, firms will have to work with their assigned case officer. Nicholas remarks, “this is where familiarity with the nuances, workings, and processes becomes an advantage. Nonverbal communication, such as tone of voice, carries more information than what is being said.” Experience derived from numerable authorisation applications helps Nicholas and other experts at DesFran delve beyond superficial interactions between the FCA and the applicants and optimise what is being harvested from a client’s resources such that time and money can be saved.
Fees are payable annually once authorised, together with a constant reminder that firms must meet the minimum standard of complying with FCA rules and send regular reports to the authority. FCA’s checklists appear to be conveniently accessible to the applicant – all the right decisions made with the click of a mouse. Yet information availability dwindles as the viewer delves into details: checklists and guides that require further explanations, information with words needing definitions in the right context. Nicholas emphasizes that it will only be resource-draining and taxing for one to apply for an FCA authorisation solely according to the information stipulated online.
Brexit and the FCA
Yet beyond the walls of the FCA regulation is a political matter that greatly affects the financial services industry: Brexit. The FCA applies its own standard on being “ready, willing, and organised to comply” when it comes to preparing for its impending departure from the EU. Apart from the industry-wide priorities such as firms’ culture and governance, operational resilience, financial crime and anti-money laundering (AML), their immediate concern, as outlined in its 2019/2020 business plan, continues to be ensuring a smooth transition post-Brexit.
This will be achieved through engaging and developing new relationships with various markets, assessing the impact of Brexit and monitoring firms’ contingency plans, while setting out the priorities to attain their longer-term ambition. Andrew Bailey, CEO of the FCA, hinted that Britain would favour a “lower burden” approach to financial regulation after leaving the EU to return to a more flexible and result-oriented proposal. Whatever the strategy, it is up to the regulatory body to find a framework that benefits Britain, Nicholas notes, “to ensure balance between public interest objectives and those of the FCA regulated firms.”
Any doubts and queries on FCA authorisation and registration or offshore company formation and licensing can be clarified by contacting DesFran here. Professionals at DesFran are passionate about helping companies expand and maximise their resources.
About the Authors
Nicholas Lee is the Principal Consultant for DesFran based in the UK. Concurrently as Director for City Link Consultancy Services Limited, Nicholas has over 11 years of experience in the financial services industry, starting his career with OCBC Bank as a banker in the wealth management division, and moving across into the securities industry specialising in providing FX, CFD, white label and platform solutions for institutional clients.
Nicholas has deep knowledge of the regulatory scope in Europe having helped clients to setup and obtain authorisation for financial services firms in the UK, and managed mergers and acquisitions for DesFran’s clients in Europe. As an avid fan who is well-networked in the UK, Nicholas had also negotiated corporate sponsorship deals involving English Premier League Football clubs on behalf of clients.
Nicholas holds a Master’s Degree in Science, Business Management from Oxford Brookes University, and a Bachelor’s Degree in Engineering from Monash University, Australia.
Joyce Sun is Strategic Communications and Research Intern at DesFran. Joyce enjoys learning as she writes financial news blurbs and editorials involving financial regulatory developments due to her keen interest in equities and finance-related topics. She is a final year honours student at the National University of Singapore hoping to pursue a career in the finance industry, and to continue developing her knowledge in investments.