The Financial Conduct Authority (FCA) has regulations that any firm in the financial sector is required to follow. Getting FCA authorisation is vital in this industry to avoid fines, discontinuation of your financial services, and other types of sanctions.
The FCA has a duty to manage and monitor financial businesses carrying out regulated financial activities in the UK. Although not run by the UK government, it is financed by the fees charged to members within the financial services sector.
Having FCA approval makes you a trustworthy business for potential clients. The FCA’s objectives are to increase market integrity and principles, encourage healthy and fair competition between firms, and to protect financial customers at all times.
This article covers all the basics on securing FCA authorisation. But we recommend working with a trusted legal firm to go through the process and stay compliant.
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How to get authorised by the FCA
The FCA has many different requirements and rules that organizations must abide by to be eligible for approval. Most firms that are offering regulated activities in financial markets will be required to be an authorised firm by the FCA.
There are various steps you’ll need to take in order to become an authorised firm. All of these steps can be followed and completed on the FCA website, and the whole process takes around 6 months.
Type of business
One of the first steps you’ll be required to take for your application is confirming your type of firm or your business model.
There are lots to choose from, including:
- Lending firms
- Home finance providers
- Debt firms
- Credit intermediaries
- Claims management companies
- Mortgage intermediaries
- Asset managers
- Wholesale investment firms
- Retail investment firms
- Authorised and recognised funds
- Benchmark administrators
- Credit rating agencies
- Trade repositories
- Securitisation repositories
- Data reporting services providers
- Payments and e-money firms
- Cryptoasset firms
- Banks, insurers and credit unions
- Funeral plan providers
- Money laundering registration
The FCA likes to know your business model or firm type so they can determine if your company’s strategy for completing their business is deemed suitable. Factors such as the necessities and potential risks for the customers will be taken into account based on the type of company being run.
You can confirm your business type when submitting your application, but we’d recommend looking into the type of legal firm you’re running so that your submission is as accurate as possible.
Minimum regulatory financial requirements
All firms who are looking to be approved have minimum standards as a firm to follow. There are capital requirements put in place for financial firms such as banks or other organizations where funds can be held or deposited.
These requirements are laid out in various guides produced by the FCA. The requirements to follow are dependent on the business type and specific circumstances for each firm, so they can vary massively. This is why we recommend doing some research based on your organization type and seek legal advice from a trusted firm.
Your regulatory business plan
There are a minimum of 13 steps that need to included in your regulatory business plan. But you may also be asked to produce further details of your plan.
Here are the 13 mandatory steps:
- All information on your business’s background, including it’s legal structure and what the firm plans to achieve
- The main aims and objectives of the organization, like future business opportunities, increased market share, and how much money the firm is handling for its clients
- Future expansion on strategy plans
- Evident target market, pricing, and products
- The customer experience
- Intended business plans and strategies
- The qualifications or experience of the owner, founder, or CEO of the firm for carrying out the business’s type of activities
- Qualifications and background of those who are in senior management roles or will be carrying our tasks that require certification
- Financial estimations and projections for the next 1-3 years
- Anything your business relies on or any key risks you’re aware of
- Marketing strategies
- Plans for outsourcing any business needs such as IT or security
- Potential conduct risks in the organization
Being able to provide these plans and records to the FCA will support any application for approval and supports the fact you should have nothing to hide.
Although collecting all of this information can be time consuming, it’s best practice when considering starting a firm in the legal industry, to have this information prepared and ready from day one.
To stay FCA compliant you’ll need to cover many of these plans and steps regularly anyway, not just for this application. So, getting into a good routine and implementing steps to keep updated on the regulations should become your norm.
Before submitting your authorisation request, you want to ensure that anyone allocated to a senior management role has the full qualifications, experience, and certification to be carrying out the duties they get tasked with.
Having competent and qualified employees, especially senior managers, in positions that require these skills will protect the business integrity, reputations, and trust.
The firm itself is expected to have this in depth knowledge before handing this position to someone. Relevant checks are expected to take place on these employees. Background and reference inspections, credit checks, and criminal record research are just some of the examples.
These people will be representing your company and will be the downfall of it if a mistake is made by someone who isn’t qualified for the position they’ve been allocated.
When you begin hiring for a position or promoting into a role, ask for proof and evidence of qualifications, certifications, employee reference details, and consent for a background and criminal check.
The FCA are responsible for the functioning of the UK financial services market and ensuring it stays honest, fair, and protects the client.
If a firm hires an unqualified employee for a role and a mistake is made after the FCA has guaranteed the organization approval, it could affect the reputation and protection the FCA has in the financial sector.
The company, as the employer, is responsible for making sure this does not happen. You’re better off being overly cautious as it impacts the business that you’ve built.
Systems and controls
In your application for approval, you’ll be asked to clearly lay out your responsibilities as per the FCA’s Senior Management Arrangements, Systems and Controls (SYSC) handbook. This includes business organizational expectations, compliance with FCA rules as per the compliance monitoring program, an internal audit, financial crime and business risk protection, record management, and safety.
Covering all of these areas in your applications gives the FCA insight into how you would comply with their rules so they can continue to achieve their aims.
Who, or what, needs to be FCA authorised when providing financial services?
There are many types of firms that are required to gather to join the financial services register such as payment services providers.
As a basic principle, if your firm is looking for or is carrying out any regulated financial business activities within the UK which are listed in the financial services and market act 2000 (regulated activities) order 2001 (SI 2001/544), then you’ll likely require FCA authorisation first.
An example of some of the business types that are require to take part in the FCA authorisation process are:
- Consumer credit firms
- Investment firms
- Banks, credit unions, and insurers
- Benchmark administrators
- Credit rating agencies, trade repositories, and securitisation repositories
- Payment financial services and e money institutions
- Claims management companies
A list of financial activities that FCA oversees can be found on the FCA website.
What is the difference between FCA authorised and FCA registered?
Authorisation is suitable for any sized firms and once the full FCA application process has taken place and approval has been granted, it allows the firm to provide a full list of e-money and payment financial services (unless the FCA has imposed any restrictions on this firm).
FCA registered is ideal for smaller firms, has a straightforward application process, and is available at a cheaper price. But, this does mean the firm will have restrictions on the financial services they are allowed to provide.
Who is exempt from the financial services register?
Some firms may not require FCA authorisation depending on their situation. Some of these include:
- Professional organizations like solicitors or accountants
- Firms offering the option of payment by installments
- Authorised firms with appointed representatives working on their behalf
Checking if you’re required to get FCA authorisation is important for businesses in the legal sector. If you are required and haven’t done so, it could result in the FCA discontinuing your firm, sending you hefty fines, sanctions, and more.
How long does the FCA authorisation process take?
The approval process usually takes anywhere from 6-12 months depending on how much extra information has to be requested and gathered by your firm during the application process.
A case officer will be assigned to your application which can take some time, along with the turnaround time on the submission of the main application forms and the supporting documentation. The case officer will be in charge of getting all information from you and deciding if you’ll be approved.
There are reports to suggest that when you hire an FCA consultant the approval process time can be reduced to 3-6 months. A consultant could also assist with collecting the information for your submission and ensuring you have a strong application to send to your case officer.
You’ll also want to keep in mind the application fee for your submission.
You might have discovered from this article that there are many steps to take to become FCA authorised.
Regulations for the financial services register are not something to take lightly as they can have a massive impact on the running of your business. Hiding information, missing information, or not following regulations could result in a refusal of approval. This could potentially lead to loss of trust and therefore clients, and sanctions from the FCA.
You’ll want to try and have lots of this information prepared when you first form your organization to get into a routine of keeping hold of records and protecting client information. This way you can easily provide anything the FCA needs for the application or in the event of a compliance investigation later down the line.
You’ll want to do thorough research into the application requirements for your business. We’d recommend seeking legal advice from a trusted firm to get the most accurate information for your firm and activities.
You could potentially consider assigning an FCA consultant to support you throughout your application and get it reviewed in a shorter time frame, so you can advertise your FCA authorisation for your firm. But, do remember that this will endure an extra cost on top of your application fee.