Become a Principal

Financial service providers operating in the UK are authorised by the Financial Conduct Authority (“FCA”). These include; Consumer Credit Lending, Credit Broking, Claims Management and Debt Collection.

The first place to begin is to establish which type of FCA authorisation you need. These types are known as permissions. Firms obtaining FCA authorisation apply for specific permissions which are relevant to their business model. There are a number of exemptions to needing authorisation which some firms can rely on but firms using these exemptions should document this decision and set out any parameters to these exemptions. This is often obtained through a ‘perimeter assessment’.

Once you have established the correct permissions to apply for, you then need to begin to prepare your firm for authorisation. This includes consideration of costs, timescales, systems and processes and any potential recruitment which you may need.

The FCA assesses authorisation applications against their minimum requirements known as the Threshold Conditions. The FCA’s application assessment seeks to establish whether an applicant satisfies these Threshold Conditions.

There are 5 Threshold Conditions which are:

Location of offices

The location of offices threshold condition requires all applicant firms to have its ‘mind and management’ located in the UK. In practice, most firms should be able to satisfy this requirement as the majority of firms which seek FCA authorisation operate from the UK.

However, for applicant firms that currently have their mind and management outside of the UK would need to make arrangements to have, at least, its key function based in the UK for the purposes of meeting the location of offices threshold condition.

Effective supervision

The effective supervision threshold condition is concerned with whether an applicant firm arrangements enable the FCA to effectively supervise its compliance with the requirements of the regulatory system. The effective supervision threshold condition links to the location of offices threshold condition in that having a ‘mind and management’ presence in the UK enables the FCA to effectively supervise firms.

The effective supervision threshold condition relates to (1) the corporate structure of an applicant firm and whether this would prohibit the FCA’s ability to effectively supervise the firm and (2) the applicant firm’s ability to maintain adequate records to demonstrate the compliant operation of its regulated activities.

Corporate structure

The corporate structure element of this threshold condition is largely concerned with complex group structures which can have parent undertakings domiciled in overseas jurisdictions that could affect the FCA’s ability to obtain information to effectively supervise compliance with the regulatory system.

Record keeping

The record keeping element of this threshold condition is concerned with an applicant firm’s systems to facilitate effective record keeping. This links to the proposed activities which require call recording facilities, arrangements to retain electronic communications and arrangements to maintain data due diligence records. The general principle behind the record keeping element of this threshold condition is that applicant firms need to demonstrate to the FCA that they have the ability to keep an adequate audit trail of all their regulated activities to enable the FCA to effectively supervise compliance with the requirements of the regulatory system.

Appropriate resources

The appropriate resources consist of two elements, namely (1) appropriate financial resources and (2) appropriate non-financial resources. The appropriate financial resources requirement requires applicant firms to demonstrate to the FCA that they are solvent. Firms may need to demonstrate that they have sufficient capital to meet any relevant minimum capital resources requirement that applies to them.

Applicant firms are required to demonstrate solvency and satisfaction of the capital resources requirement by submitting their opening and forecasted closing balance sheet as part of the FCA authorisation process. In addition, some firms are required to hold professional indemnity insurance that meets the FCA’s minimum requirements.

The non-financial resources element of this threshold condition is concerned with the quality, quantity and availability of and applicant firm’s human resources, IT systems and compliance resources (i.e. systems and controls). Beyond the jargon, systems and controls requires firms to demonstrate to the FCA that they have the following arrangements in place to adequately identify, control and monitor risk (particularly consumer risk) and systems to operate the business with diligence.

This element of this threshold condition will require applicant firm’s to have a documented compliance framework consisting of policies, procedures and supporting documents (e.g. risk register) to demonstrate that it has appropriate systems and controls in place. In practice, firms need to have an appropriate compliance manual that reflects its business processes and risk profile.

Suitability

The suitability threshold condition is concerned with the fitness and propriety of the firm and its senior managers. The relevant considerations in assessing the fitness and propriety of an applicant firm includes taking account of historic regulatory action any remedial action taken to demonstrate suitability. The fitness and propriety of a firm’s senior management team will assess the character, competence and financial probity of Senior Management Function candidates to ascertain suitability to be entrusted to lead the applicant firm post-authorisation.

Applicant firm’s should ensure that they have taken appropriate remedial action to any historic investigations, letters of warnings and enforcement actions and can demonstrate this to the FCA as part of the authorisation process. We advise firm’s to exercise prudence in the choice of their Senior Management Function candidates and ensure that they are fit and proper.

Business model

The last threshold condition seeks to assess whether an applicant firm’s business models upholds consumers’ interests, demonstrates integrity and shows that the firm’s affairs will be conducted in a sound and prudent manner. In practice, the FCA will assess the drivers behind the firm’s business model, its products and services (regulated and unregulated), its revenue strategy, its growth strategy, the associated consumer risks within the model and the controls the firm will put in place to safeguard the interest of consumers and deliver positive outcomes.

One of the key documents that is typically submitted with an FCA application is a regulatory business plan which is used by FCA case officers to understand a firm’s business model, the typical customer journey, associated consumer risks and the effectiveness of the controls in place to deliver positive consumer outcomes.

Get authorised with our help

We guide our clients through the process of authorisation and enable the FCA to appropriately assess whether an applicant firm satisfies the Threshold Conditions. Our team of experience professionals work with you to create and furnish the FCA with evidence that your proposed business processes demonstrate the appropriate systems and controls to satisfy and, once authorised, continue to satisfy the Threshold Conditions.

We offer a range of packages which suit a variety of budgets, helping our clients to launch their regulatory offering with peace of mind.

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