Any business carrying out a regulated activity in the UK must be authorised by the FCA, unless they are otherwise exempt. Well-prepared applications for FCA authorisation can complete in as little as 6 months, although incomplete applications can take much longer. In this article, we will set out the essentials of FCA authorisation to ensure a successful application.
FCA applications are an involved process and we would advise you seek legal assistance from our financial services experts at your earliest convenience.
This article covers:
- What is FCA authorisation?
- Do you need to be FCA authorised?
- Who is exempt from FCA authorisation?
- How should you prepare for FCA authorisation?
- Preparing to apply to FCA for authorisation
- What are the FCA’s threshold conditions?
- How do you apply for FCA authorisation?
- What is the FCA Connect system?
- Should you apply for Limited or Full Permission?
What is FCA authorisation?
The Financial Conduct Authority (FCA) is the body responsible for the regulation of all financial services in the UK. The FCA aims to increase market integrity, promote healthy competition and to protect customers. It does this through the supervision of authorised firms, by creating rules and procedures and by taking enforcement action against those businesses that breach its rules.
Any firm carrying out a regulated activity must be authorised by the FCA. Once authorised, there is a yearly fee and a set of minimum standards that businesses must meet at all times. If a business fails to meet these standards then the FCA can deny, vary or cancel your permissions.
Do you need to be FCA authorised?
Generally, if you are engaged in financial services in the UK then you will require FCA authorisation. Under the Financial Services and Markets Act 2000 (FSMA), a person carrying out a specified activity relating to a specified instrument requires FCA authorisation. If you carry out such activities without appropriate authorisation you may be committing a criminal offence under FSMA.
Specified activities include:
- accepting deposits
- payment services
- consumer credit regulated activities
- insurance-related activities
- investment activities (eg advising on investments, managing investments)
- mortgage-related activities
Specified investments include, but are not limited to:
- electronic money
- consumer credit and consumer hire agreements
- contracts of insurance
- contracts for difference (CFDs)
- debt instruments (bonds, notes etc.)
- pension scheme rights
If you conduct any of these specified activities for specified instruments as a business then you will require FCA authorisation. If you are unsure whether your business activities require FCA authorisation, our team of experts can help you understand your regulatory obligations.
Who is exempt from FCA authorisation?
FSMA, the Payment Services Regulations 2017 and the Electronic Money Regulations 2011 provide for certain exemptions from FCA authorisation for:
- Agents of payment institutions and electronic money institutions.
- Appointed representatives.
- Recognised investment exchanges and clearing houses.
- Professional firms, such as solicitors, accountants or actuaries.
- Those businesses listed in an FSMA exemption order for certain regulated activities. For example, local authorities are exempt in respect of accepting deposits, and the Band of England and IMF are exempt for most activities except for carrying out contracts of insurance.
How should you prepare for FCA authorisation?
The FCA expects firms to take regulation seriously and to plan how they will meet the FCA’s standards. At a high level, the FCA will consider whether the applicant is ‘Ready, Willing and Organised’.
The FCA will consider what the applicant has done when preparing to submit their application. Positive indicators include:
- reading information on the FCA’s website
- making enquiries to the FCA’s contact centre
- seeking legal/compliance advice
- clearly articulating your regulatory obligations
The FCA will also consider the willingness of the applicant to comply with the FCA’s authorisation process. Positive indicators include:
- being open and honest in your dealings with the FCA
- being proactive in getting information from the FCA
- demonstrating efforts to understand your regulatory duties
- timeliness and availability of staff to deal with enquiries
The FCA also expects applicants to have the necessary supporting document for their applications and to have arrangements in place to comply with regulations from the day you are authorised. The FCA will consider:
- why you applied now
- what is left outstanding that would prevent you from carrying on the activity you applied for
- would you be able to comply with the rules if you were authorised today
Preparing to apply to FCA for authorisation
The FCA expects applicants to carry out a certain amount of preparatory work before they even start to fill out an application form. Key issues you should consider include:
- Do you meet the FCA’s threshold conditions?
- What type of regulated activity does your business fall within?
- Will you be able to abide by the FCA’s high-level principles for business (PRIN)?
- Have you prepared a business plan with associated risks, budget and resources?
- Do you know which rules in the FCA Handbook apply to your business?
- Have you determined the systems and controls necessary to support your firm’s activities?
- Do you know which people in the business require qualifications?
- Have you determined who will fall within the senior managers and certification regime (SM&CR)?
What are the FCA’s threshold conditions?
The FCA’s threshold conditions are the set of minimum requirements that a business must meet to become and remain authorised. Failing to meet the threshold conditions, will result in a firm failing to receive FCA authorisation or to have an existing authorisation modified or cancelled.
The FCA’s threshold conditions related to:
- appropriate resources
- business model
- effective supervision
- location of offices
FSMA requires that businesses maintain both sufficient financial and non-financial resources for their business. These include systems, controls, plans and human resources. The FCA will also consider whether a firm maintains sufficient capital, provision against liabilities and other liquid assets for its operation.
The FCA’s business model condition involves the FCA assessing whether a company’s strategy for doing business is suitable for its regulated activities. The FCA will consider the needs and risks to consumers, expectations of stakeholders and the products and services being offered. The FCA may also consider diversification strategies and outsourcing and recruitment arrangements.
The effective supervision threshold condition requires a firm to demonstrate that it is capable of being supervised by the FCA. This includes the nature and complexity of a firm’s products and business. The FCA will consider whether the FCA has received adequate information from the firm and the people with whom the firm has close links, as well as the geographical spread of the firm.
Location of Offices
Generally speaking, the FCA requires that a firm’s head office and its management are based in the UK. In particular, the FCA will consider the location of the firm’s directors and senior management, as well as where the central administrative functions of the business are located.
Finally, the FCA will consider the suitability of each person who performs a senior management function within the business. However, the emphasis of this threshold condition is on the suitability of the firm itself. The FCA will consider how a firm conducts business and whether it can demonstrate skill, care and diligence in its work.
How do you apply for FCA authorisation?
The particular forms you need to fill in will depend on the activities you are applying for authorisation to carry on. You should send your completed application form and appropriate fee to the FCA. You will also be required to offer your FCA case officer more information, clarification and/or evidence to support your application.
In some cases you may need to meet with the FCA to discuss your plans and the FCA’s expectations in relation to your business before you submit your application.
The FCA will make a decision on a complete application within 6 months. However, if your application is incomplete, the FCA must make a decision within 12 months.
If you are successful in your application, the FCA will write to you confirming your ‘Part 4A permission’ authorisation. Your Scope of Permission notice will state which regulated activities you have permission to carry out, when your permission starts and which requirements or limitations or limitations you have requested.
If the FCA does not consider your application to meet the standards for authorisation, it will recommend to an executive decision maker to refuse the application. If you fail to provide the minimum information required, the FCA may reject an application and refund the application fee.
What is the FCA Connect system?
FCA Connect is the FCA’s online system to submit application and notifications. FCA Connect is accessible through most internet browsers.
Once you have made an application on Connect, the FCA will contact you, typically within 3 weeks, to tell you which case officer has been assigned to your application or to tell you the date by which an officer will be assigned.
When a case officer has been assigned to your application, you will receive an email notification and an alert within Connect.
Should you apply for Limited or Full Permission?
- Tier 1: full credit authorisation regime for higher-risk consumer credit activities
- Tier 2: limited permission regime for lower-risk consumer credit activities
Tier 1: full credit authorisation regime
Firms who activities are deemed to be high risk are subject to the full authorisation regime. The full authorisation regime requires that you demonstrate that you can meet all of the FCA’s threshold conditions.
Higher-risk consumer credit activities include:
- Consumer credit lending
- Credit brokerage
- Credit information services
- Credit reference agency
- Debt administration
- Debt adjusting
- Debt collection
- Peer-to-peer lending (P2P lending)
Tier 2: limited permission regime
The tier 2 limited permission regime is a lighter regulatory regime for firms conducting lower-risk consumer credit activities. These include:
- Consumer credit lending linked to the selling of goods
- Consumer hire
- Credit brokerage where the main business is selling goods
- Local authorities
- Not-for-profit debt counselling and debt adjusting
- Not-for-profit credit information services
Applying for limited permission involves a shorter application process and lower application fee than applying for full permission.