Gaining fca authorisation in the uk q and a - cummings final
Gaining FCAAuthorisationin the UKQ and A.www.cummingslaw.com
www.cummingslaw.comQ What were the reasons for theFinancial Conduct Authority (“FCA”)being set up originally?A In 1986 when the investment marketopened up to a wider investor universe, whichincluded making it possible for retail investors tomake direct investments, it was perceived thatthese investors needed a form of protection andso regulatory bodies were established, whichwere later combined into one regulator, theFinancial Services Authority (“FSA”). The FSAceased to exist on 1 April 2013 and was replacedby, inter alia, the Financial Conduct Authority(“FCA”), which has adopted the legal corporateidentity of the FSA and has inherited most of theroles and functions of the FSA.Q Do investment firms have to givethe same levels of regulation to allclients?A No. Firms which deal with retail investorsare subject to a greater regulatory burden thanthose who deal only with professional investors.Similarly, capital requirements are greater forfirms holding client money and greater still wherethat money comes from retail investors.Furthermore, the type of service offered by afirm attracts different levels of regulatory burdenwith those firms only advising professionalinvestors being subject to a less onerousregulatory burden than for those holding theassets of retail investors.In addition, use of the appointed representative/tied agent regime is possible for certain restrictedactivities, such as providing investment adviceand making arrangements in investments.Q Who is regulated?A Both the investment firm (generally apartnership or company) and those in the firmwho conduct regulated activities in relation toregulated investments must be authorised by theFCA, subject to certain loopholes established bylegislation.In addition, those who own enough of theinvestment firm to have influence over it mustalso be approved by the FCA as fit and proper tohold such a position.Q What are these regulatedactivities and regulated investments?A These are listed in financial serviceslegislation and a firm and its relevant staffwill be required to be authorised if he/sheconducts specific activities in relation to specificinvestments. Thus, it is a two-limbed test.Regulated activities include:• accepting deposits;• dealing in investments;• arranging deals in investments;• managing investments;• safeguarding and administering investments;and• advising on investments.Regulated investments include:• shares;• debt instruments;• futures and options;• units in collective investment schemes; and• contracts for differences.Gaining FCA Authorisation inthe UK - Q and A.
www.cummingslaw.comQ How does a potential investmentfirm or person apply to becomeauthorised?A Application is made by the completionof certain specific forms produced by the FCAplus supporting information such as financialforecasts, terms of business and offeringdocuments. Applicants are required todemonstrate they have full knowledge of all FCArequirements and suitable systems in place.Capital requirements must be met andmaintained and each firm will calculate itsown requirement using FCA set levels as thestarting point.Only staff who are both competent and fit andproper will be authorised. These conditions maybe met by experience and/or examination.Certain specific roles must be filled by suitablepersonnel, for example the compliance officerand anti-money laundering officer.External professional firms may make theapplication and continue in their roles as advisersafter authorisation.The application is time-consuming and quitecomplex and thus it is very common for lawyersto be instructed to prepare the application pack.Q What are the on-goingrequirements?A All FCA rules must be met at all timesand regulatory capital must be maintained atall times.The firm must make regular reports oncompliance and financial issues and informthe FCA of certain changes, some of which willrequire advance approval.The firm must maintain full compliancedocumentation and a business continuity planas well as conducting and documenting stresstesting exercises on an annual basis.All staff who are regulated must remaincompetent and receive regular anti-moneylaundering training.
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