Non-UK based firms wishing to provide financial services in to the UK may require authorisation and regulation by the UK Financial Conduct Authority (the FCA). On 3 February 2021, the FCA published a document clearly setting out its approach and expectations for such "international firms" to understand the market before they enter.
Who is covered by this guidance? And why now?
Following Brexit, firms based in the EU (and EEA) can no longer use passporting rights to access the UK financial services market without a separate FCA authorisation (unless already operating under the temporary permissions regime). As such, since 1 January 2021, there has been a step-increase in the number of international firms. Hence the timing of this publication.
What does the document say?
In the document, the FCA sets out its general approach to the authorisation and supervision of international firms providing or seeking to provide financial services that require authorisation in the UK. This includes those firms that have applied or intend to apply in the future, and those that are already authorised in the UK.
In line with other relatively recent overview documents, this approach document is largely non-technical and easy to read. It provides a good starting point for any international firm entering (or already active in) the UK market.
The document is broken in to three sections:
- Overview of the FCA's approach
This section summarises the minimum standards for authorisation. It also touches on the often-asked question of the choice between a branch and a subsidiary, as well as the risks of harm relevant for international firms.
It also considers the decisions the FCA may take following an assessment of an international firm's compliance with the minimum standards. Finally, it sets out the FCA's decision making process, complete with a useful diagram.
- Main considerations in the FCA approach
This section covers the FCA's general expectations for international firms, including their personnel and systems and controls. Here too there is clearly an understanding of the common questions asked by international firms as there is another helpful vignette, this time on the question of whether international firms are required to have a place of establishment in the UK at all.
This section also covers the FCA's approach to assessing an international firm's risks of harm, focusing on retail harm, client asset harm and wholesale harm.
- Mitigating identified risks
This section covers the ways international firms may mitigate the retail, client asset and wholesale harms identified in the FCA's assessment.
Who is not covered by this guidance?
As ever, whilst many international firms will find the approach document useful, it is worth noting that there are several categories of firms that are not covered by the document. In particular, the approach document does not apply to entities that require authorisation or registration but must be incorporated in the UK, including:
- incoming payment services firms - these entities are required to be incorporated in the UK;
- depositaries, trustees and managers (also referred to as operators) of UK authorised funds (including UK UCITS) - these entities are required to be incorporated in the UK, and for their affairs to be administered in the UK; and
- international alternative investment fund managers (AIFMs) - only firms with their registered office in the UK can obtain permission from the FCA to manage an AIF.
How we can help
The FCA's new approach document for international firms is a good starting point for incoming firms looking at the UK. But if it doesn't contain all the answers you need, the regulatory team at Howard Kennedy have deep experience of advising clients from around the world who are seeking to access the beating heart of the UK economy. If you are an international firm, or advising one, we'd be delighted to talk to you about your questions and work with you to find the right solution for your situation. We advise clients from across the spectrum of financial services. And we specialise in giving straight-forward advice to enable our clients to get the outcome they require.