Khepri's A to Z: Licenses - Buy and Sell-Side Compliance
Introduction
In this article, we examine licenses from the perspective of investment business in the UK. We have also included our “Ten Top Tips” for a successful outcome.
Do you need a license to undertake investment business in the UK?
In short, yes.
If you are conducting Regulated Activities in the UK, you need to ensure that you have the appropriate license or fall within one or more of the applicable exemptions.
What is the first step I should take?
It is always a good idea to seek legal advice to ensure that you understand which type of registration or authorisation you need.
How can a license be obtained in the UK?
Whilst we are using the generic term “license”, the technical term is obtaining from the FCA permission under Part IV A of the Financial Services and Markets Act (as amended) (FSMA).
Part IV A permission refers to the authorisation granted by the FCA in the United Kingdom.
The FCA is the regulatory body responsible for overseeing financial services and markets in the UK.
Part IV A of the FSMA outlines the regulatory framework for obtaining permission to carry out regulated activities in the financial sector.
Part IV A permissions are required for firms and individuals who wish to conduct regulated activities in the UK.
Regulated activities include a wide range of financial services such as providing investment advice, managing investments, arranging deals in investments, dealing in investments as principal or agent, and more.
How long does it take?
The process with the FCA can take up to 12 months for most types of investment business and preparing the application pack can take another 3 months.
Can I make the application to the FCA myself?
Yes. However, the FCA does not make the process easy and has very exacting standards. You may like to use the services of a specialist compliance consultancy.
Top tips
We think that the following are very important for a successful application. Please read these alongside the further reading we have provided in the section below.
Overall proposition: It is important to have a strong business proposition that is designed in a way to achieve good outcomes for your clients / investors. You should consider your proposition from your client’s / investors perspective – if you were in their shoes why should they participate and what are the benefits to them.
Legal advice: Taking legal advice on the proposed business structure is very important and will definitely save time later if, after FCA scrutiny, it turns out that you are not seeking permission for the correct Regulated Activities, which may then have implications for your governance and financial position i.e. you may need additional people (some types of permission require to directors) or additional financial resources (the capital requirements for some types of permission are higher than others).
Sufficient Experience: Make sure that you are able to clearly articulate to the FCA why you are qualified to undertake the activities for which you are seeking permission.
Financial Projections: The FCA expects very detailed projections and for the projections to link to the assumptions that you are making in connection with the revenue and expenditure of your business and for this to tie into your business plan. Engaging a suitability qualified accountant may be useful.
Compliance and financial crime experience: For small businesses, it may not be financially viable to hire a full time, or even a part time, dedicated compliance resources. However, having such an individual within the business will greatly help in the application process. Alternatively, you may wish to assign someone in the business to take relevant compliance training courses and for that person to be supported by an outsourced compliance adviser.
Management information / Internal decision making: You should think about all the things that could go wrong in the business and, on the other hand, all how you are going to measure the success of the business and the actions and decisions that you will need to take on a day to day basis. You will them be able to craft template management information packs and decision making authority to help you monitor and manage the business on a day to day basis.
Policies: You will need a full FCA compliant policy suite.
Controls: In addition to compliant policies you will need to demonstrate how these will be translated into day to day actions. We find that a controls matrix will assist in this regard
Attention to detail: There will be hundreds of pages that need to be submitted to the FCA. It will be important to take the time to study all the information you plan to provide and check it has been accurately completed and is internally consistent.
Ready to role: Lastly, and perhaps most importantly, you will need to demonstrate to the FCA that you are ready, if authorized on the day you submitted the application, to conduct regulated business.
Where can I find more information?
The FCA has useful information about the authorisation process here.
