How to Launch without FCA Authorisation

How can you launch without FCA Authorisation.  The Financial Services and Markets Act (FSMA) says any firm or individual who carries out a regulated activity in the UK (this includes dual-regulated firms) must be authorised or registered by them, unless they are exempt.

Any financial services firm can launch without FCA Authorisation, as an early market entry strategy.

The complexity of the FCA Authorisation process is a daunting one at the best of times.  The FCA rule book has more than 7000 pages and its growing daily. To make matters worse, some of the rules are being revised as we speak. Keeping on top of these rules is a challenging process – frankly – a nightmare.

However, being regulated can certainly bring a huge amount of benefits to your business.

FCA Authorisation Brings Benefits

As we covered in our free Guide to FCA Authorisation Success, being regulated certainly bring huge amount of benefits to your business, including:

  1. Ability to build a larger market share because you are able to reach a wider market audience;
  2. Larger financial services firms will feel more comfortable partnering with you and equally, being regulated instill a level of trust in your customers as well; and
  3. If implemented in the right way, they can actually build you a better business that will bring you higher valuation when you go on to raise additional funding or exit the business.

Whilst bringing significant benefits, in the short term, regulation can be a huge hindrance, especially when you are just looking to launch a brand new business or expand into new product lines, requiring new regulatory permissions.

The licensing process, at least in the UK, is very onerous and time consuming.

Firstly, there is a significant cost attached to the preparation exercise, at a time when you are not generating any revenues. Secondly, the process is long winded and you could end up waiting up to 12 months before being able to start your business. This is a huge opportunity cost.

Launching without FCA License

There are ways in which you can start trading sooner, whilst awaiting your full regulatory authorisation.

The alternatives will enable you to launch your business or product in a more strategic way, with lower start-up costs and avoiding the opportunity cost of having to wait to generate revenue until you are fully authorised.

The alternatives to being fully regulated may very well not be open to everyone, depending on the nature of your business. However, here are some ways in which you can start trading whilst preparing for full FCA authorisation:

  1. Regulatory Exclusions – The regulation provide many valid exclusions and exemptions that can allow you to start trading in a legitimately unregulated fashion. Now, it can be a minefield to work through and understand the regulation to the level of depth needed to be able structure the business operations to avoid regulation. Once you figured this out, you need to ensure that the business continue to meet the conditions imposed by the regulatory exemptions.
    Failing this will easily stray the business into the regulated space and you will have the regulator knocking fiercely on your door.
  2. “Borrow a License” – You can quite legitimately trade under someone else’s license in what is known as a Principal / Appointed Representative relationship. This is like a franchise model, where the Principal will take care of your compliance requirements. However, choosing the right Principal is crucial, as they will become your regulator. The wrong partner is likely to constrain your business significantly as they are mainly driven to minimise their regulatory risks, whilst you are looking to build a business.

So my advice to you is to before embarking on a fully regulated path, first take a step back, get into a strategy session and explore ways in which your business can either – at least initially – trade without a license, or borrow somebody else’s license.

This exercise will require an iterative approach to realigning the business strategy and operations. Sometimes it may help to get outsiders involved in helping you shape this strategy, as you may be too close to the business to see alternatives. We can certainly help in this space.

Case Study: FCA registration Process

A peer to business lender, decided to await the outcome of their authorisation application, rather than taking a decision to launch without FCA authorisation or operating as a principal.  They knew the benefits that regulation would bring to their business, and wanted to launch in the right way.

Because they had a complex and innovative business model, the authorisation process took a staggering 18 months (instead of the anticipated 7 month) to come to a conclusion. They were of course delighted when they eventually got their license.

They lost out on potential 18 months’ worth of revenue. Worse still, when they launched, the market they intended operating in started to show signs of cooling. The founders started to run out of money as they had to fund their personal and business expenses.

At this point it would be advisable to take a step back and objectively assess whether you can deploy an early launch strategy whilst awaiting the outcome of an FCA authorisation application.

If you decide to go down the unregulated path, ensure you understand and adhere to the conditions imposed by the regulatory exemptions or exclusions. If you go down the appointed representative route, then ensure you get the right partner on board, who will help your course rather than hinder your progress.

Why not Download a FREE Guide to FCA Authorisation Success

By the way, if you are preparing to apply for an FCA authorisation, then you must download this useful guide, which shows you how you can prepare in a systematic way in 90 days or less, and improve your business while going through the process.

FCA Authorisation Guide Cover Aligned 2

Download Now

Its FREE

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