FCA Applications: Avoid the Pitfalls

“We are being tougher on firms who want authorisation to operate in the UK,” is a quote from the FCA’s CEO, Nikhil Rathi, from the 2022-25 Our Strategy. This is something we have certainly seen in practice with the frequency and ferocity of questions as part of the application process. 

In section 3 of the strategy, the FCA go on to set operational targets, stating “strengthening our authorisation gateway so firms need to meet a higher standard before we authorise them; as a result, we’ve increased the proportion of applications that we refuse, reject or which applicants withdraw to one in seven (up from one in thirteen).” Again, this is seen in the thoroughness the regulator now employs when reviewing applications, we’re lucky to be in a position to handle several applications per year, which, in turn, allows us to ensure we include the required information and thus the pitfalls are avoided. 

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What are the pitfalls?

Failing to understand the Consumer Duty 

As the backbone and central pillar of the FCA’s rules, the consumer duty must be understood by firm’s applying for authorisation. In fact, they must do more than simply understand the duty, they need to ensure their business strategy has been created with the duty in mind. The regulator expects to see this represented in the regulatory business plan and will ask for copies of product approvals, value assessments and communications testing. 

Vulnerable customers

New applicants don’t always appreciate the level of focus the FCA has on vulnerable customers and the need to have provision in place to identify and support such customers. Even where your role in the distribution chain does not appear to give you much opportunity to help vulnerable customers, they still expect to see firm’s have considered what they can do and put in place relevant processes. 

Financial data 

As part of applications, firms must prove they have sufficient financial resources through providing an array of data. This data must be accurate and always demonstrate a positive cash-flow with subordinated debts controlled. 

Compliance monitoring 

We’ve noticed a real focus area is the compliance monitoring plan, this can be especially challenging for smaller firms who would traditionally produce a plan focused on the key conduct risks enabling them to use their resources efficiently. However, this risk-based approach does not appear to be favourable to the FCA, who are focused on ensuring all compliance areas are monitored thoroughly, including the accuracy of regulatory reporting, oversight of conflicts of interest through to the more traditional three lines of defence. A detailed and properly formed monitoring plan will help expedite applications. 

Governance structures 

There have been several regulatory initiatives in recent years which have moulded firm’s governance arrangements. From the Senior Managers and Certification Regime to the Consumer Duty PRIN 2A.8/9 requirements. As this is another focus area of the authorisation team, they expect to see such structures to be well thought out, including the MI / reporting to be brought to relevant committees. 

All of this highlights the importance of using professional advisors to assist you with applications. The intimate knowledge of the application process, the regulators preferences and level of detail cannot be underestimated. 

We recognise that applicants may not always require, or desire, full consultancy support in relation to their application. Therefore, we’re developing a DIY toolkit to give clients a self-serve option. If it is something that could be useful for you, you can register your interest by emailing robert.bell@rbcompliance.co.uk .