Authorisation - it doesn't need to be tricky

Anthony Ma Anthony Ma

Despite the current climate, the UK’s financial sector remains strong and continues to be an attractive base for many overseas banking branches and financial start ups. A key reason for this is the mature regulatory framework governing the UK.

At the heart of this is the stringent authorisation process for regulated activities. While the tough requirements are a necessity, it can be difficult for firms to navigate the authorisation process smoothly and it can take a long time. Preparation is key.

The type of authorisation needed will depend on the regulatory activities planned. Every regulated activity must be authorised by the appropriate regulator. For Financial Services and Markets Authority (FSMA) firms:

  • if a proposed business involves deposit taking or insurance contracts underwriting they must apply to the Prudential Regulation Authority (PRA)
  • other regulated activities including those governed by the Alternative Investment Fund Managers Directive (AIFMD) and Undertakings for Collective Investment in Transferable Securities (UCITS) require firms to go to the Financial Conduct Authority (FCA) unless otherwise directed.

Non-FSMA firms are subject to legislation such as the Payment Services Directive (PSD2) and the Second Electronic Money Directive (2EMD).

Prepare for a tough process

Achieving authorisation is a long and involved process. There are a number of threshold conditions that apply to both solo and dual regulated firms. The applicant must prove these conditions are satisfied at the point of authorisation and that they can continue to meet these criteria on an ongoing basis.

During the authorisation process, regulators will assess the applicants financial and non-financial resources.

Financial resource requirements:

  • this is a key legal criterion and the firm must be fully capitalised on authorisation. A firm’s permission profile will determine its prudential category, which in turn informs the amount of regulatory capital needed.

Non-financial resource requirements:

  • firms must submit a regulatory business plan (RBP) describing the proposed strategy, business model, operating model and a regulatory analysis
  • an applicant must provide evidence that ‘mind and management’ are in the UK and that the controllers can adequately direct the proposed business activity
  • firms must demonstrate their governing body and organisational structure in relation to key regimes such as the Senior Manager and Certification Regime (SM&CR)
  • firms should also consider their operational risk management processes, including the role of outsourced organisations and the use of IT systems.

Firms may not get it right the first time

The authorisation process has set time frames, which can be a stumbling block for some applicants. From the day the application is complete, regulators have six months to make their decision. But few applications are seen as complete on submission and the regulators will usually need more information.

This is a problem because the regulators also work to a second deadline. They must reach a decision within 12 months of the submission date – regardless of when the application was marked completed. Firms who do not fully prepare, risk a ‘minded to refuse’ decision or may have to withdraw their application because the regulator does not have enough time to fully consider the application. To increase your chances of authorisation, take the time to prepare your application to the fullest extent possible prior to submitting.

Taking the first steps

The authorisation process is intensive and requires proper research, planning and specialist resourcing. Firms should take advantage of all pre-application support available. This includes pre-application with the PRA and the FCA's 'Innovation Hub' or 'Asset Management Authorisation Hub' for eligible organisations.

For further information and advice on the authorisation process, please contact Anthony Ma.