FCA shares findings on authorisation and registration applications

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What does the FCA focus on in its findings on authorisation and registration applications?

The FCA has divided its findings into three main areas of focus, namely that firms are able to demonstrate in their applications that they have:

• staff with the appropriate skills, experience and capacity to provide the relevant financial service;
• robust policies that document their processes and procedures; and
• financial resources that are appropriate for the nature and scale of their business.

The FCA points out that its findings should be read alongside the other relevant authorisation information for firms on its website.

Staff with appropriate skills, experience and capacity

Areas for improvement from the FCA’s findings are as follows:

• Avoiding over-reliance on compliance consultants.  The firm should be able to demonstrate that it understands its regulatory obligations without its consultant’s support.
• Being able to demonstrate how individuals with multiple responsibilities will allocate their time to competently fulfil their roles – a particular challenge for smaller firms, but the FCA still expects the application to explain in practical terms how the individual will split their time across their different responsibilities and roles.
• Being able to evidence the eligibility of staff to work in the UK or provide addresses which support an assertion that the business will be UK based.  Proof of ‘a meaningful commitment to doing business in the UK’ is required.

The FCA notes with approval that some firms have recognised gaps in their staff resources in their applications and explained upfront how they will be filled and over what timeframe (e.g. by including plans for recruitment or skills gaps analysis with detailed plans to upskill existing staff in a reasonable period after authorisation or registration).

Robust policies documenting processes and procedures

The FCA emphasises that firms’ policies should demonstrate how their systems and controls are appropriate for the nature and scale of their business and show how they will deliver good outcomes to customers.

This appears to be a particular area of concern from the FCA’s findings, as the areas for improvement are more numerous than for the other two topics:

• Policies should be tailored to the firm’s specific business, showing how they would be implemented by the firm – a point which is especially relevant for small firms, who may not have the resources to implement complex compliance arrangements.
• All of the likely customer scenarios should be considered when designing systems and controls in order to avoid gaps where customers, especially vulnerable ones, may not get the support they need and could therefore suffer poor outcomes.
• Firms should not just repeat the FCA’s rules within their policies, but document how they intend to comply with those rules within their own business.  Examples of good practice here include weaving in the Consumer Duty throughout policies, procedures, systems and controls, rather than simply repeating the FCA’s expectations of the Duty in a separate document.
• The focus should be on the risks that a firm’s business model exposes its customers to, rather than on the risks to the firm, especially when considering compliance monitoring arrangements.
• The different policies should be aligned so that they make sense when considered together.  Use of templated policies that have not been designed for the specific firm should be avoided.
• Clear information on planned IT systems and infrastructure should be provided.  This information should identify the use of off-the-shelf, modified or custom systems.  The timelines and project plans for the intended technology should also be clear and realistic.

The FCA highlights use of its sample business plan as an example of good practice – a point that it says is especially relevant to small firms who may not have had a documented business plan in place before making their application.

It also mentions with approval those applications which made clear within their policies how their decisions are made in the UK when their operations are located overseas – an important aspect for the FCA in ensuring that it will be able to supervise the firm effectively.

Appropriate financial resources for nature and scale of business

Points to pay attention to when preparing financial information for applications include:

• Making sure that historic financial accounts are submitted as part of the initial application.  Failure to do so will delay the FCA’s assessment of the application;
• Ensuring the accuracy of information submitted. Inaccurate information will lead to additional information requests that, again, will delay the assessment; and
• Including all relevant information to verify that the firm has the necessary financial resources to meet the FCA’s prudential requirements under the applicable rules, where relevant.

The FCA signposts firms to its guidance on best practices for preparing financial information.  It also highlights use of its retail firm financial analysis template or its wholesale and consumer investment firm financial analysis template to present forecast information as an example of good practice.

Authored by Virginia Montgomery and Charles Elliott