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Gaining Financial Conduct Authority (FCA) authorisation is a critical step for asset management firms operating in the UK, but it comes with numerous challenges. Recent FCA data highlights common mistakes firms make during the application process, providing valuable guidance for those seeking authorisation or a variation of permissions. 

Between April 2023 and April 2024, the FCA processed 310 asset management applications. While 73% were approved within eight months, 18% were withdrawn due to FCA concerns. Firms often face the choice of withdrawing applications when they struggle to meet regulatory requirements within the statutory timeframe, leading to potential delays in business operations and increased costs.

The FCA's approach is particularly stringent for new firms, as it seeks to close gaps in the authorisation process. Firms may be asked to withdraw their application if unresolved issues remain close to the deadline. In such cases, failure to comply may result in outright rejection, followed by a mandatory 12-month waiting period before reapplying.

Location of Offices

One of the FCA's primary concerns is the location of a firm’s offices. The regulator mandates that the 'mind and management' of a firm must be in the UK. Senior management cannot adopt a 'fly-in-fly-out' approach or restrict UK operations to compliance or administrative tasks alone.

Firms need to ensure that their governing body and key functions like portfolio management, distribution, and compliance are managed day-to-day within the UK. This emphasis is particularly important for compliance officers (SMF16) and Money Laundering Reporting Officers (SMF17), who must be based in the UK.

Appropriate Resources

The FCA frequently questions whether firms have adequate non-financial resources, especially in terms of senior management. Firms need to demonstrate that their senior managers possess the necessary knowledge, experience, and authority to fulfil their roles.

Interviews with senior managers are a key part of the application process, where the FCA will assess how well these individuals understand the regulatory framework and the potential risks their business poses to clients and the market.

Firms must be fully prepared with recruited staff and sufficient capital in place by the date of authorisation.

Business Model Concerns

Business models that present high risk, particularly to retail clients, are subject to heightened scrutiny. Firms must demonstrate that they can meet the obligations set out under the Consumer Duty.

Moreover, firms seeking exemptions from the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) based on the assumption that they will only serve professional clients often face rejection. The FCA clarifies that professional clients may still have access to these services, making a lack of understanding here a red flag.

The regulator also highlights common errors in conflict of interest management and oversight of outsourced arrangements.

The FCA has little tolerance for applications that require extensive modifications after submission. Firms are encouraged to use the FCA's pre-application support services to address any issues before filing. This is especially beneficial for firms with high-risk activities or those expanding into the UK from other jurisdictions. 

At Alumni Compliance, we specialise in helping asset management firms navigate the FCA authorisation process. With extensive experience supporting hundreds of clients, we know what the regulator expects and can assist in preparing robust applications while identifying and mitigating key risks. Our team is well-versed in the intricacies of FCA requirements and is ready to help ensure your firm is set up for success from the start - we do this by tapping into the talent and expert technical knowledge of former FCA employees who themselves use to work within the FCA's Asset Management Authorisation and Supervision departments.

For asset managers seeking expert guidance in FCA authorisation, contact Alumni Compliance today.