The ‘Transformed’ Regulator and Authorisations Pt 3; Laying the foundations – what/how

  • Posted on: 24 March 2022
  • Written by: James Borley

This is our final article in our authorisations series where we have been tracking how developments at the FCA are having an impact on authorisations and regulatory transactions, before our webinar on the topic on 28th March. In this article, we look at how the FCA approaches its assessment of an application for authorisation, taking into account the factors we have looked at in the previous two articles (which can be found at the bottom of this article).

‘Ready Willing & Organised’

Key today, more than ever before, is the FCA’s expectation that applicant firms submit an application that clearly demonstrates that they are ‘ready, willing and organised’ in order to be authorised. But what does this actually mean? Put simply, they must meet the ‘minimum standards’ the regulator demands at the point of authorisation, and on an ongoing basis thereafter. Clear information relating to all the ‘ready, willing and organised’ elements should be present in a firm’s application when it is submitted to the FCA. These elements are summarised in the FCA’s own words as the following:

Ready - Authorisations will consider what the applicant has done when preparing to submit their application. Positive indicators can include: seeking compliance advice…being able to clearly articulate their regulatory obligations

Willing - Authorisations will consider the attitude of the applicant during the authorisations process. Authorisations are aware that whilst an applicant may be willing to correct mistakes or gaps in their application, they must also have satisfied the readiness question. Authorisations do not believe it is sufficient for an applicant to submit a poor application but show they are willing, with help from Authorisations, to address any deficiencies. Positive indicators include: being open and honest in their dealings with [the FCA]…being proactive about getting information to [the FCA]

Organised - You should ensure that you have all the supporting documentation prepared and have the necessary arrangements in place to comply with regulations from the day you are authorised. Authorisations will consider [inter alia]; if the applicant were authorised today, would they be able to carry out the activity they have applied for.

Some recent examples where the FCA has deemed a firm not to be ready willing or organise include failure to have already appointed a Money Laundering Reporting Officer (MLRO) and failure to have prepared a Wind-down Plan.

The Assesment

Every application will be considered on its own merits. As we said in the first article, the FCA announced in its Business Plan for 2021/2022 that it will seek a ‘more robust gateway for new firms’ with ‘more intensive assessment and greater scrutiny of firms’ financials and business models’.

One of the elements the FCA judges is the quality of the relationship it has with firms during the application process. So for example, firms that are not responsive to requests for information, or who are seen to be withholding information, may find themselves having their application refused by the regulator.

The FCA Board has delegated certain decision-making powers to the CEO who, in turn, may delegate further to certain individuals or committees. In the authorisations space, this has seen decisions to approve applications for permission or individual approval being delegated to and taken by more junior members of staff. This will, of course, be subject to those individuals’ work being assessed over a period of time before they are adjudged to have sufficient knowledge and experience to make such decisions and then monitored as part of ongoing quality assurance. Remember though, that because these are individuals, this inevitably leads to more varied, inconsistent approaches taken, depending on the individual case officer’s level of knowledge and personal risk tolerance. That last bit is important, as we increasingly see case officers trying to put into practice the FCA CEO's publicly stated aim of delivering a ‘more robust gateway’.

What is the refusal process?

Where the application does not appear to meet the relevant conditions of authorisation, the individual case officer is unable to make a unilateral decision to refuse the application. Instead, and typically after much internal consultation with peers and advisory staff, a recommendation will be made to an internal committee, typically the ‘Regulatory Transactions Committee’ (RTC) or other similarly-purposed committees. Having chaired a number of RTCs myself in the past, I understand the process well, and the significant amount of work that goes into preparing the ‘evidence’ to support a recommendation to refuse an application. Where the RTC agrees with the recommendation, it will issue the firm a formal ‘Warning Notice’ advising the firm of the action the FCA proposes to take and why.

However, that is a lengthy, time-consuming process. Ahead of taking such steps, where the FCA considers that the application does not meet the relevant conditions of authorisation, the case officer will communicate this opinion to the applicant firm and suggest that they consider withdrawing the application before the formal refusal process is initiated.

Where the firm ignores this ‘suggestive’ communication and is issued a Warning Notice, it may wish to ‘make representations’ to challenge the Warning Notice. However, such representations are no longer able to be taken to the independent Regulatory Decisions Committee (RDC but, instead considered by a senior internal committee of FCA staff under ‘Executive Procedures’. Where the committee is unmoved by the firm’s representations, then it will issue the firm a Decision Notice. There is a further opportunity for the firm to ‘appeal’ this decision by referring the matter to the Upper Tribunal. We commented previously that, whilst a Committee of the FCA Board, the RDC is nevertheless chaired by and composed of industry practitioners, providing objectivity that an internal FCA committee simply cannot.

Then there is the question of ‘grounds’ for refusal – your evidence versus the FCA’s ‘evidence’ – and whether you see merit in challenging the FCA, and at what point. If not yet using external support for your application, perhaps that might be an opportune time for an impartial view.

Consultancy value add

We’ve managed over 1,100 authorisations and regularly interact with the FCA. In fact, our FCA authorisations service has been recognised for its efficiency, effectiveness and quality. We know the process, understand each of the steps and know what the FCA are looking for. We bring value by minimising the time you spend on your application, giving you the best chance to get authorised in the fastest possible time. For more information and resources to support your application you can visit our dedicated authorisations webpage or contact us to speak with an expert.