Don’t lose track when getting authorised

Once a firm hits submit on its authorisation application, months if not years worth of hard work have gone into getting to that stage. It is crucial to get the contents of the application right to get approved and operational.

Some firms underestimate the level of detail required only to be told 6-12 months later their application has been unsuccessful and their business plans put on hold - wasting time and money in the process. To put the success rate into context, in 2021, 20 percent of firms’ applications for FCA authorisation were refused, rejected, or withdrawn.

Before going into some tips, it’s important to remind ourselves why the FCA uses the Authorisation process:

“We use authorisation to test the most significant drivers of behaviour that can create cultures which lead to harm. These include a firm’s purpose, its leadership, its approach to rewarding and managing people and its governance arrangements.”

In our experience firms tend to make some common mistakes when pulling together their authorisation application:

It will take longer than you think

Don’t underestimate the time and effort involved in getting to the point of submission. Whether it is an external party or someone internally its best to appoint a dedicated lead to:

Make sure the right people are involved at the right time
Upload all your hard work to the FCA Connect system, which can be a tricky task in itself
Keep the project on plan from a time and cost perspective

The time it takes to get authorised is influenced by a number of factors. In particular:

Capacity: an authorisation requires collective effort and commitment to ensure the key people are made available to feed into the application to get the application submitted on time as per the plan.
The nature, scale and complexity of your business: if a firm requires minimal permissions and there is little risk of consumer detriment it will naturally be easier and less time consuming to explain and document the business plan and accompanying control framework. The further away the application moves from being a vanilla proposition, the more a firm must do to clearly articulate its business plan and control framework.
Your financial resources: authorisations can be costly, especially where the business plan evolves over time and stretches budget. Without a sufficient financial buffer, firms can often have to put the authorisation on the backburner whilst they wait for fresh capital.

The FCA then have six months to process your case (12 months if the case is considered to be incomplete). This bit is out of your control though. The bit you can control is everything leading up to submission of your application. It’s hard to say exactly how long it might take to get to the submission phase - we’ve seen it take as little as four weeks, and as long as 18 months.

Regulatory Business Plan – the devil is in the detail

This is the central tenet of an authorisation. The Business Plan’s purpose is not to secure investment but to satisfy the regulator that you have identified any risks associated with your business model.

You need to clearly map out your product/service and how you will deliver it. The regulator wants to understand you have a risk framework that is appropriate for your business.

The marketing plan needs to be credible and based on actual research rather than assumptions. It must be clear how customer numbers / growth figures in the financials will be achieved to demonstrate the business is viable not only in the short, but also, medium to long term
Accurate use of language – be very specific with your use of regulatory language when describing the regulated activities being undertaken, it can be easily mis-interpreted if used incorrectly
Use diagrams to display financial flows and the customer journey. Make sure to detail which parties and systems are involved at each stage

Financial projections and requirements - credibility, not positivity

This section requires input from right across the business and is a complex task.

If there are periods where capital and liquidity dip / rise sharply – make sure the reasons for this are clearly set out to provide context for the case officer and don’t try to show the business will hit profit if that won’t reasonably be the case.
Growth overheads – where periods of rapid growth are built into projections, firms often underestimate or forget to add increased associated staff costs etc into their cost base
Link back to the business plan – the numbers should be based on the businesses agreed plan, not potential plans or ideas with unknown costs

Financial crime controls - protect market integrity

The way in which a firm’s controls are described needs to be specific to the firm. This is especially relevant for firms with higher-risk business offerings and exposure to high-risk jurisdictions, sectors or customer types.

Map how the risks identified in the firm’s financial crime risk assessment are effectively mitigated by the controls across the three lines of defence
For newly regulated firms, the MLRO may not have carried out the role before. Ensure the MLRO has training and or acquires a qualification by a reputable provider and that this is documented in the application to demonstrate commitment to financial crime prevention
If you are relying on another group entity to execute your financial crime controls, ensure there are no on-going supervisory issues with that entity which will undermine your position. Additionally ensure you demonstrate how the entity will be able to cope with the additional demand

Owners and controllers - transparency matters

The FCA want to understand who owns and controls the entity to allow them to carry out due diligence. Providing incomplete or unclear information will halt the application.

Multi-layer ownership charts can be confusing. Provide context on company ownership charts to guide the case officer through the diagrams
In the case of new Group entities - make sure the company ownership structure presented matches that of other already authorised Group entities. If there is a material update to ownership the FCA should be notified of the change to the already authorised entity
Be transparent – it can be hard to establish exact ownership information when the entity is part of a large group or who is responsible from a people perspective. However, this information is needed to get authorised - stress the importance of establishing this information internally if information is not forthcoming

Governance - it all hinges on this

Governance has been and will remain at the forefront of the FCA’s mind. The FCA need to be persuaded that a firm is going to be well run and not disrupt the market or adversely impact on consumers.

Where staff are being proposed in roles with key Governance accountability, be honest about their credentials. If they haven’t done this before but have transferable skills – explain how they will upskill for their new role and be compliant with SMCR (where applicable)
Is the governance framework scalable – if the plan is for rapid growth can the framework be effective, if not firms should set out plans for changes to their framework as the business grows and resource demands shift
Relying on other group entities governance frameworks – the FCA need to understand how a Group entity will be able to govern the new entity soundly in addition to its existing responsibilities

Your authorisation process is important, and it can also be complex. We pride ourselves on helping you complete the authorisation process quickly and comprehensively.

FCA authorisation