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What is happening?

The UK regulator, the FCA, published in February 2021 its approach to the authorisation and supervision of international firms. The publication explains how the FCA will assess international firms when they apply for authorisation to operate in the UK market. The FCA has considered responses to its consultation CP 20/20 (published last year) and alongside the publication, it has published a feedback statement alongside the approach document.

Firms may also wish to consult the FCA’s web page on authorisation.

What do you need to do?

This approach document is for international firms that:

• intend to apply for authorisation in the UK, or
• have applied for authorisation in the UK, or
• are already authorised in the UK

It does not apply to entities that may require authorisation or registration but must be incorporated in the UK. This includes, for example:

• Firms required to be authorised or registered under the Payment Services Regulations 2017. These entities are required to be incorporated in the UK,
• Firms required to be authorised or registered under the E‑Money Regulations 2011 and have their registered office in the UK (i.e. those that provide payment services that are unrelated to e‑money issuance),
• Depositaries, trustees and managers (also referred to as operators) of UK authorised funds (including UK UCITS schemes). The relevant legislation requires such entities to be incorporated in the UK, and for their affairs to be administered in the UK,
• International alternative investment fund (AIF) managers. Only firms with their registered office in the UK can obtain permission to manage an AIF, and
• International benchmark administrators. The relevant legislation does not allow non‑UK entities to obtain permission for benchmark administration, although there is a separate regime under which they can apply to be recognised.

The FCA expects firms seeking authorisation to have an active place of business (a branch) in the UK to enable them to effectively supervise their UK activities.

Firms that wish to be authorised in the UK need to be “ready, willing and organised” to meet the minimum standards set out in the relevant legislation – for example, firms seeking Part 4A permissions under the Financial Services and Markets Act (FSMA) need to meet the relevant threshold conditions. When deciding whether to authorise an international firm, the FCA will apply the same standards, with the same statutory objectives in mind, as for UK firms. Once authorised, firms will need to meet the minimum standards at all times.

The FCA considers the international firm’s potential to cause harm (its ‘risks of harm’) and the level of these risks.

This document sets out three potential risks that are more relevant for international firms, especially (but not exclusively) those operating from branches, namely:

• Protection for the UK office’s retail customers, through redress and supervisory oversight, for example, could be less effective, especially if the international firm becomes insolvent or exits the UK (‘retail harm’),
• The UK rules that protect client money or custody assets safeguarded through the UK office and the home state insolvency regime which may become applicable if the international firm fails may not be aligned. This misalignment could negatively impact the outcome for UK clients (‘client assets harm’), and
• Shocks or risks that originate from the international firm’s overseas offices could, in some circumstances, be more difficult to detect or prevent and could be passed easily to its UK office, affecting the stability and integrity of the UK markets in which it operates or to which it is connected (‘wholesale harm’).

Additional issues that will be considered as part of the assessment are;

• The adequacy of personnel (including management and decision‑making structures) and systems and controls,
• The degree of cooperation between the FCA and the home state supervisor,
• Governance structures and management oversight, and
• Appropriateness of non‑financial resources, including systems, controls and human resources,

As part of the assessment of an international firm, the FCA will consider whether it offers adequate mitigation against the risk of any harm identified.

If having conducted its assessment, the FCA take the view that an international firm meets the minimum standards, it will be authorised. It may consider imposing limitations or requirements as part of any approval, to be satisfied that the firm will meet minimum standards on an ongoing basis. For example;

• A limitation may be placed on a firm’s permission, to restrict its activities to reduce the potential for harm. For example, the FCA might limit the number or category of customers a firm can deal with, or the number of specified investments that a firm can deal in.
• A requirement may be placed on a firm to require it to take or refrain from taking a certain action. For example, the FCA might require a firm not to take on new business, or not to trade in certain specified investments.

If the FCA considers that the minimum standards are not met, for example where any risk of harm identified is not adequately mitigated, it may refuse to permit the firm to conduct the relevant regulated activities.

How can we help you?

If, as an international firm, you’d like to know more about how we can help you with seeking FCA authorisation, or with any other aspect of FCA compliance, our expert team is here to help.

Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.