06 March, 2015
The New Year is well and truly underway but if brokers were hoping for a quiet start to 2015 they will have been disappointed, as the regulator’s authorisation of the sector is currently in full swing.
Those firms that haven’t already been called up to start their authorisation process are currently waiting in line for their day of reckoning.
Given that the sector has moved up the ranks from the Office of Fair Trading to the Financial Conduct Authority, the authorisation process reflects this and recruits into the FCA are being put through their paces with a more rigorous and demanding application process.
Start Planning Now
For those brokers who have already been through the application process, the consensus is that it has been much more time consuming than first anticipated.
Alistair Ewing, director of Blimey Loans, says the process wasn’t any more difficult than he thought it would be as he has previously run a firm authorised by the Financial Services Authority.
But he says: “However to take over seven months to get authorised was much longer than we thought it would take despite the FCA’s indicated six month turnaround time.
“I felt because we had taken the time to prepare well before our landing slot, we would actually get through much quicker than we did. It did however take the FCA seven weeks to allocate our case worker, so the application didn’t really get off to the flying start we hoped it would. My main tip to others about to embark on the same journey is to make sure they do the preparation and leave plenty of time before their landing slot.”
Tim Wheeldon, managing director of Fluent Money, also says the process was vastly more time consuming than he imagined.
“The amount of information the regulator needs isn’t specified and the amount of guidance it gives you is limited,” he says.
“You only get one shot at it and if the regulator doesn’t like what you have said you will get asked for lots more information. So the idea is to submit as much as you can in the first instance. From a principle basis as well you should be sharing as much as you can with the regulator – for a decent size business the amount of work involved can be huge.”
Wheeldon advises firms to start preparing three months before their window opens.
“Expect it to take twice as long as you think it will because once you start going through and analysing what you do and how you do it, it very quickly grows legs and the amount of information you have to submit will expand,” he warns.
Licence to Trade
There has been little guidance from the FCA about which licences firms need to apply for, a problem which first surfaced last year when firms started to apply for their interim permissions.
The industry was divided with some firms believing they did not need to hold the category E (debt counselling licence) and category D (debt adjusting licence), while others did.
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries and Association of Finance Brokers, says a number of firms are finding the authorisation process a challenge.
“There are thousands of firms applying to the FCA at the same time, so there are an awful lot of people involved in the process,” he says. “Therefore the chance of the same application landing in front of the same person twice is relatively limited.
“We are seeing lots of different interpretations of the licence categories and even a simple understanding of what is the difference between credit broking, debt adjusting and debt counselling.”
Sinclair says the regulator does not seem to have a consistent process.
He warns: “It’s up to each firm to make sure that they apply for the correct licences to match their business model.”
Sinclair advises firms that they might want to employ a professional compliance consultant to help them.
Paul Crewe, director at Smart Money, took the decision over a year ago to employ a full time compliance expert to guide the company through the process and ensure that it had had everything in place. Crewe says many of its introducers have also benefitted from the expertise it now has in house.
“The firms who will do the best are those who get proper advice from someone who knows what they are talking about,” he says.
“Having said that, 50% of the applications will be straightforward to complete. My advice is to do the hard work in the background, ensuring you have all the compliance/financial crime procedures in place, and don’t underestimate how long this will take to pull together. In the application you just tick that you have them but the regulator may ask to see them.”
He says firms should not be put off if they get lots of questions back as every firm will.
On top of the paperwork there is also the cost to consider.
Crewe says: “Don’t forget to allow time and money for your accountants to produce the required reports/forecasts and your latest copy of management accounts.
“The compliance monitoring plan template provided by the FCA realistically gives you a list of what you should be doing, so make sure that you are and it’s documented.”
He adds: “Brokers also need to be ready for the hefty fee that will be between £5,000 and £15,000 payable as soon as they submit their application online.”
A Learning Exercise
For many, the FCA’s authorisation process will be their first glimpse into what the FCA has in-store for the market.
Steve Walker, managing director of Promise Solutions, says at the outset the application process appeared too onerous and created more questions than answers.
But he says: “Once you systematically work through the application, it clearly sets out what the FCA expects to see and any questions which leave brokers nervous should be viewed as an indication of a potential weakness in the business and addressed.
“Brokers should not underestimate the time or dedicated focus required and should treat it as a learning exercise to help them prepare their business for the future. If the application identifies gaps which brokers can close, their business should be in a better shape at the end of it.”
Barney Drake, director of Y3S, says it has found the process to be pretty straightforward.
“The FCA are very helpful and if anything, encourage you to call them to seek assistance in the application process. It certainly is a very comprehensive application procedure, but understandably so given the importance of ensuring the customer is given best advice,” he says.
“The FCA clearly insist that you have the relevant systems, procedures, people and ongoing development to ensure the customer is at the heart of everything a company does and of course, the bigger the firm, the bigger the responsibility they have to the general public.”
The hard work however does not stop once you have gained your licence.
Drake says: “Once you have your permission, I see it that you have to evidence to the FCA that you have more than catered for this. That obtaining the licence was not a ‘one-off’ project as such, but more a constantly refined, ever-enhancing, ongoing piece of work that exists throughout your business.”
Firms preparing for their FCA application may feel like they are going into battle with the FCA. Although this shouldn’t be case, the amount of detail the regulator will want to go into about businesses will be unprecedented for many firms and will no doubt seem like there are hostilities at times. For those that aren’t defeated however, the firm should come out of the other side triumphant and with a bulletproof business model.