Obtaining authorisation from the Financial Conduct Authority (FCA) can be a crucial step in the life of your financial services business. So how should you handle circumstances where an initial application for FCA authorisation has been unsuccessful? Read this essential guide for helpful tips on how to deal with a disappointing application outcome.
If you need further support, Harper James’ financial services solicitors are on hand to assist with all aspects of your journey to FCA authorisation, including preparing or updating your application and overcoming any problems which may arise.
Contents:
- Why is FCA authorisation important?
- Are FCA authorisation applications often unsuccessful?
- What are the main reasons why FCA authorisation applications fail?
- What should I do if my application was rejected for being incomplete?
- What should I do if the FCA has requested further information from me about my application?
- What should I do if the FCA is minded to refuse my authorisation application?
- What should I do if my authorisation application has been formally refused?
- Conclusion
Why is FCA authorisation important?
Your business is prohibited from undertaking certain financial services in the UK unless it has authorisation to do so from the FCA or is otherwise exempt. Activities which are restricted in this way are referred to as ‘regulated activities’. Doing a regulated activity without the right authorisation is a criminal offence and could have serious consequences for you and your business. So, if your business model involves doing a regulated activity, obtaining FCA authorisation is a vital step in your business’ journey.
Find out more about authorisation and regulated activities in our Knowledge Hub article ‘FCA authorisation: Does your firm need it and what’s involved?’.
Are FCA authorisation applications often unsuccessful?
Unfortunately, yes. In recent times, the FCA has adopted a policy of more rigorous scrutiny for new firms applying to enter the authorisation ‘gateway’ to UK regulated financial services. The FCA is also less open to ‘holding the hands’ of businesses to help them improve deficient applications. According to the FCA’s own data, 1 in 5 applications for authorisation were unsuccessful in 2022/3, up from 1 in 14 in 2021/2.
However, even if your initial application has not succeeded, you should not lose heart. Although it can be understandably frustrating to have your business plans delayed, there are concrete actions you can take to improve the chances of a revised application being approved.
What are the main reasons why FCA authorisation applications fail?
Key reasons why your application to the FCA for authorisation might not have succeeded include:
- Incomplete application: Your initial application did not contain all the required information or you have failed to pay the application fee.
- Failure to appropriately respond to FCA follow-up information requests: Following your initial application, you did not provide supplementary information requested by the FCA promptly or in full.
- Failure to meet FCA expectations: You have not demonstrated to the FCA (through your application and any further information provided) that you have a suitable business model and that your business is ready for the responsibilities which come with being a regulated firm.
What should I do if my application was rejected for being incomplete?
If the FCA reviews your application and finds that it does not contain the right information, the FCA will reject the application without assessing it. Your application fee will be refunded.
Common omissions from incomplete applications include:
- incomplete, missing or unsigned forms
- passwords not being provided for protected document files
- key internal positions still being unfilled (such as your compliance officer)
- submission of incomplete, or insufficiently granular, financial information
- generic, off-the-shelf business plans which do not reflect your business’ specific circumstances, and
- indications that the technology or systems you'll be using to carry out the applied-for regulated activities aren’t ready.
If the FCA tells you that your application is incomplete but you don’t understand why, you should ask them for additional feedback. You should also look back at the guidance which the FCA publishes on its website to help you understand the information which you typically need to include in an authorisation application. You can visit the FCA’s authorisation home page and select your type of firm for more detail. The FCA also has a call centre which you can contact if you have a specific query about the application process.
The FCA makes it clear that an important prerequisite for authorisation is that your business has properly prepared. This means carefully reading their guidance and taking legal or other professional advice as needed. Harper James’ financial services team has extensive experience in preparing FCA applications and can help you prepare a comprehensive submission.
Your application may also be considered incomplete if you do not follow the correct application process. Your application should be submitted electronically via the FCA’s Connect system. You will need to register on the system to submit your application. There is also an application fee which must be paid.
You should be aware that the 6-month timescale for the FCA to consider a new firm application does not begin to run until it has received a complete application. Therefore, submitting an incomplete application can cause a substantial delay to the authorisation process while you re-submit a new application.
What should I do if the FCA has requested further information from me about my application?
Even if your initial application contains all the minimum information and you have paid the fee, the FCA makes it clear that it is unlikely to approve authorisation applications straightaway. This is because the FCA is likely to want to clarify something or ask follow-up questions. You will be assigned an FCA case officer who will liaise with you to further assess your application.
You should not view the expected need to provide follow-up information as an opportunity to submit a weak initial application with a view to amending or enhancing it as the process progresses. This may result in your application being rejected as incomplete, as explained above, and can also influence the FCA’s view as to whether your business is well-prepared.
You should review carefully review any contact from your case officer about your application to make sure that you have answered all their questions and provided all the additional information requested by the due date. When responding to FCA information requests, it is helpful to always ask your case officer to confirm that they have everything they need to avoid any unnecessary delays or misunderstandings.
If the FCA asks you about something sensitive which you’d prefer not to tell them, you should avoid any temptation to prevaricate or be untruthful. You should meet any weaknesses in your application head on, making it clear that you have carefully considered the issue and have a plan in place to deal with it. Legal advice can be helpful in considering your options and how to approach disclosing sensitive matters to the FCA.
The FCA will consider your co-operation during the application process in deciding whether your business should be authorised. If the FCA asks for further information, they will expect you to be proactive in getting it to them – for example, by ensuring that you and your staff are available to deal promptly with queries. The FCA also needs to be confident that you'll be open and honest in all your dealings with them.
If you need more time to gather the information requested, or to revise your plans in response to feedback from your case officer, you always have the option to withdraw your application and re-apply again later. However, remember that you will lose the fee you’ve paid and will have to pay this again if you re-apply.
What should I do if the FCA is minded to refuse my authorisation application?
If the FCA has concerns about the substance of your application and these have not been alleviated by any additional information you have provided, the FCA may indicate to you that it is ‘minded’ to refuse your application. At this point, the FCA will usually give you the opportunity to withdraw and re-consider your application. Again, your fee is not refunded.
The reasons for the FCA being minded to refuse your application will be specific to your firm and its proposed business model. Before your business can be authorised, it must meet minimum standards called ‘threshold conditions’. Threshold conditions include requiring your business, for example, to have appropriate financial and non-financial resources, a viable business model and to be suitable to become a regulated firm. You must also be able to show that your business can comply with the FCA Principles for Business and other regulatory rules which will apply to you from Day 1 of being an authorised firm.
Potential deficiencies with authorisation applications include:
Financial resources: There may be technical reasons why you do not meet minimum capital adequacy standards e.g. because you have not adequately evidenced minimum funding levels or your professional indemnity insurance cover is not sufficient.
Non-financial resources: There may be other problems with how your business will be run such as inadequate IT infrastructure, poor design of your governance, control or compliance systems or a lack of appropriately experienced and qualified staff.
Business model: Your business model may not align with the FCA’s vision of a well-functioning market. This may be because your profitability does not seem sustainable, your activities risk straying beyond those for which you’ve applied to be authorised or you are providing products which do not meet consumer needs.
Suitability: The FCA may have concerns about whether your business is suitable to be a regulated firm. This can occur if, for example, the FCA suspects that you are not being open and cooperative, if your business cannot make its own decisions because it’s controlled by somebody else or you do not have a big enough presence in the UK to allow you to deal properly with supervision queries. The FCA can also object to your business name if it is inappropriate or risks confusion with another business.
Ready for regulation: You may not be ready to meet regulatory rules. For example, you have not planned ahead to implement the FCA’s new consumer duty or made plans to tackle any conflicts of interest.
If you decide to withdraw your application, you should invest time in considering all the feedback from your FCA case officer before deciding how to proceed. If the issues are fundamental to your business model, you may need to consider changing this or looking to operate outside the UK. Otherwise, you should ensure that you can fill any highlighted gaps in meeting threshold conditions or regulatory readiness standards. You may find it useful to take targeted legal advice on how specific deficiencies in your application could be remedied.
What should I do if my authorisation application has been formally refused?
If you choose not to withdraw an application with which the FCA is not satisfied, the FCA can formally decline your application. Your fee is not refunded.
As this action restricts your business’ ability to operate as intended, there are safeguards in place to ensure that the FCA is acting appropriately. You will receive a warning notice and you’ll be given a chance to put your side of the story. The FCA will then review its decision and, if it decides to proceed with the refusal, will issue a final notice.
If you remain unhappy with the FCA’s refusal decision, you have the right to take an appeal to the Upper Tribunal. To successfully appeal, you will need to show that the FCA failed to properly follow its procedures, failed to take account of all the circumstances (or gave weight to irrelevant factors) or made a mistake in interpreting the law. Formal appeals against FCA refusal to authorise are relatively uncommon. Most cases where the FCA has concerns involve applications being withdrawn by the applicant.
Conclusion
It can be disheartening when you learn that your FCA authorisation application has been unsuccessful. However, although frustrating, this need not be the end of your regulatory journey. With the right help and support, many unsuccessful applicants go on to become FCA-authorised firms.
If you’d like to discuss any problems with an FCA authorisation application in complete confidence, please do not hesitate to contact Harper James’ financial services solicitors for tailored and up-to-the-minute advice.
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