How to avoid difficulties with your FCA application

The FCA applies a demanding standard at the authorisation gateway, and refuses, rejects or prompts the withdrawal of applications that do not meet it. In practice the difficulty concentrates in five areas, and all five are addressable before an application is submitted.

Failing to understand the Consumer Duty

The Consumer Duty is the central pillar of the FCA’s conduct rules, set out in PRIN 2A (opens handbook.fca.org.uk in a new tab) and its finalised guidance FG22/5 (opens fca.org.uk in a new tab). Applicant firms must do more than understand it - they need to show that the business strategy was built with it in mind.

The regulator expects that to be visible in the regulatory business plan, and will ask for supporting material: product approvals, fair value assessments, and evidence that customer communications have been tested.

Underestimating vulnerable customers

New applicants often do not appreciate how much focus the FCA places on vulnerable customers, and what it expects firms to have in place to identify and support them. The FCA’s guidance is FG21/1 (opens fca.org.uk in a new tab).

Even where a firm’s position in the distribution chain appears to give it limited opportunity to help, the FCA expects to see that the question has been considered and that proportionate processes exist.

Financial data that doesn’t hold up

Applicants must demonstrate adequate financial resources, and the data submitted must be accurate and internally consistent. Forecasts should show positive cash flow, with any subordinated debt clearly controlled and explained. Adequate resources is a threshold condition the firm must meet at authorisation and continue to meet afterwards - see COND 2.4 (opens handbook.fca.org.uk in a new tab).

Compliance monitoring plans

The compliance monitoring plan is a consistent focus area, and a difficult one for smaller firms. The instinct is to produce a risk-based plan concentrating resource on the key conduct risks - efficient, and defensible in principle.

The FCA’s expectation at the gateway is broader. It looks for assurance that all compliance areas are monitored: the accuracy of regulatory reporting, oversight of conflicts of interest, and the three lines of defence. A detailed and properly constructed monitoring plan tends to move an application faster than a lean one.

Governance structures

Several regulatory initiatives have shaped what the FCA expects of governance, from the Senior Managers and Certification Regime through to the Consumer Duty requirements at PRIN 2A.8 and 2A.9. The authorisation team examines this closely.

Expect to show that structures are deliberate rather than nominal - including what management information goes to which committee, and how often.

The common thread

None of these five is a technicality. Each is the FCA asking the same question in a different form: can this firm evidence that it will do what it says it will do? Applications run into difficulty when the answer exists in the founders’ heads but not in the documentation.

That is the value of experienced support on an application - not knowing the rules, which are published, but knowing the level of detail the regulator expects to see against each of them.