The difficulties with FCA applications

As outlined in FCA’s Our Strategy 2022 to 2025, the FCA ‘are being tougher on firms who want authorisation to operate in the UK, Firms need to meet a higher standard’ which has resulted in an increase of the number of applications they refuse, reject or the applicant withdraws from . said Nikhil Rathi, FCA’s CEO.

Its easy to see just how tough it is getting to get approved by the regulator’s application review process.

The Compliance guys have been fortunate to have processed 20% of all applications to the FCA in 2024 and had an approval rate of 88% for the same year.

Download your guide to avoiding difficulties with FCA applications (collection of email address and any other details, verification, send download)

What are the difficulties?

Failing to understand the Consumer Duty 

As the backbone and central pillar of the FCA’s rules, the consumer duty must be understood by firm’s applying for authorisation. In fact, they must do more than simply understand the duty, they need to ensure their business strategy has been created with the duty in mind. The regulator expects to see this represented in the regulatory business plan and will ask for copies of product approvals, value assessments and communications testing. 

Vulnerable customers

New applicants don’t always appreciate the level of focus the FCA has on vulnerable customers and the need to have provision in place to identify and support such customers. Even where your role in the distribution chain does not appear to give you much opportunity to help vulnerable customers, they still expect to see firm’s have considered what they can do and put in place relevant processes. 

Financial data 

As part of applications, firms must prove they have sufficient financial resources through providing an array of data. This data must be accurate and always demonstrate a positive cash-flow with subordinated debts controlled. 

Compliance monitoring 

We’ve noticed a real focus area is the compliance monitoring plan, this can be especially challenging for smaller firms who would traditionally produce a plan focused on the key conduct risks enabling them to use their resources efficiently. However, this risk-based approach does not appear to be favourable to the FCA, who are focused on ensuring all compliance areas are monitored thoroughly, including the accuracy of regulatory reporting, oversight of conflicts of interest through to the more traditional three lines of defence. A detailed and properly formed monitoring plan will help expedite applications. 

Governance structures 

There have been several regulatory initiatives in recent years which have moulded firm’s governance arrangements. From the Senior Managers and Certification Regime to the Consumer Duty PRIN 2A.8/9 requirements. As this is another focus area of the authorisation team, they expect to see such structures to be well thought out, including the MI / reporting to be brought to relevant committees. 

All of this highlights the importance of using professional advisors to assist you with applications. The intimate knowledge of the application process, the regulators preferences and level of detail cannot be underestimated.