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What is happening? 

The Financial Conduct Authority (FCA) is the conduct regulator for around 51,000 financial services firms and financial markets in the UK and the prudential (capital adequacy) supervisor for 49,000 firms, setting specific standards for around 18,000 firms who become FCA regulated. The FCA’s strategic objective is to make sure that the relevant markets function well, while its operational objectives are to:

• protect consumers – to secure an appropriate degree of protection for consumers,
• protect financial markets – to protect and enhance the integrity of the UK financial system, and
• promote competition – to promote effective competition in the interests of consumers

The FCA is an independent public body funded by the firms it regulates, by charging them fees. It is accountable to HM Treasury, which is responsible for the UK’s financial system, and to Parliament.

The FCA’s work and purpose is defined by the Financial Services and Markets Act 2000, known as FSMA. It works with consumer groups, trade associations and professional bodies, domestic regulators, EU legislators and a wide range of other stakeholders. With this extensive remit, it uses a proportionate approach to regulation, prioritising the areas and firms that pose a higher risk to its objectives.

A non-exhaustive list of activities for which firms must be authorised and regulated by the FCA is provided at FCA Regulated Activities | FCA.

What do you need to do to become FCA regulated?

Certain aspects of the FCA authorisation process may differ from those used by your home country regulator. We have set out an overview of these below.

Governance/Being “Ready, willing and organised”

Firms must apply to the FCA (or, if they are to be dual-regulated, to the Prudential Conduct Authority (PRA)) to become FCA regulated. This takes up to six months if the application is complete, but could take up to twelve months if it is not complete. There is an application fee to be paid, which will vary according to the complexity of the application.

On receipt of the application and throughout the FCA’s assessment of it, it will consider whether the applicant firm is ready, willing and organised to comply, on a continuing basis, with the requirements and standards under the regulatory system, including the “threshold conditions” for authorisation. To be ready, willing and organised, the firm will need to have standards of governance, including compliance monitoring, appropriate to the level of risk in its business activities.

Office

The applicant firm will need to have a permanent place of business in the UK and the MLRO (see below) should be UK-based.

Individuals

An ‘approved person’ is an individual who the FCA approves to carry out one or more activities, called ‘controlled functions’, for an authorised firm. This person has to know and meet the regulatory requirements, as well as understanding how they are applied. They must;

• meet the requirements of the FCA’s ‘fit and proper’ test and follow its principles,
• comply with the Conduct Rules (these explain the behaviour expected of people the FCA approves), and
• report anything that could affect their ongoing suitability to the FCA and the authorised firm.

The FCA can only approve people who are fit and proper to perform the senior management function(s) they apply for.

SM&CR

The SM&CR applies to almost every solo-regulated firm, from very small firms (including sole traders and limited permission consumer credit firms) to some of the largest global firms. It is intended to set a new standard of conduct in financial services, ensuring greater personal accountability at all levels, minimum standards of conduct and that staff in key jobs are fit and proper to perform their roles

There are three categories for solo-regulated firms under the SM&CR and applicant firms will need to know in which category they will fall, from;

• Limited Scope: these firms are exempt from some baseline requirements and typically have fewer Senior Management Functions.
• Core: firms in this tier have to comply with the baseline requirements.
• Enhanced: this applies to a small number of firms whose size, complexity and potential impact on consumers or markets warrant more attention. These firms have extra requirements.

The regime consists of three key parts; the Certification Regime, the Conduct Rules and the Senior Managers Regime.

The most senior people (‘Senior Managers’) who perform key roles, including executive directors, the compliance oversight function and the Money Laundering Reporting Officer (MLRO) (known as ‘Senior Management Functions’) need FCA approval before starting their roles. Every Senior Manager needs to have a ‘Statement of Responsibilities’ that clearly sets down what they are responsible and accountable for.

Outsourcing

Where firms have outsourcing arrangements in place, they retain responsibility for those arrangements and will need to demonstrate that they have carried out and recorded appropriate due diligence on the outsourcing providers and will be able to do so in future.

Capital

It is very likely that your firm will have prudential requirements applying to it, meaning that it will need to ring-fence a certain amount of capital at all times to guard against fluctuations and volatility in the markets in which it operates. The calculation of the applicable requirements varies according to the type of firm and its activities and can be complex.

How can we help you?

If you’d like to know more about how we can help you become FCA regulated or with your FCA authorisation arrangements as an overseas firm, our expert team is here to help. Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.