Sarah Rapson – Director, Authorisations at the Financial Conduct Authority (FCA) – addressed the Association of Professional Compliance Consultants Annual Conference in March 2018, where she spoke about the regulator’s approach to authorising firms.

Ms Rapson began by highlighting three issues regarding the FCA’s approach to authorisation that she believes may be misunderstood:

  • The authorisation process seeks to prevent harm to consumers and other parties, and the information the regulator requires from a firm during the authorisation process is linked to its assessment of the risk of harm that the firm’s activities might cause
  • Authorisation seeks to improve conduct standards and culture within firms
  • Authorisation cannot be a “zero-failure regime” – it is not feasible to eliminate all risks of firm failure or harm to consumers, and to do so would have negative effects regarding innovation and competition

Concerning the last of these points, Ms Rapson acknowledged that “firms with new and innovative business models won’t necessarily understand what it means to be regulated.” She added that the FCA will look “to support them to understand and to meet our minimum standards.” Later in the speech, she suggested that firms in this situation might be authorised subject to certain conditions, such as a restriction in the number of customers they can have.

The speaker reminded her audience that all firms seeking authorisation needed to meet the FCA’s Threshold Conditions, and that all individuals seeking approval to carry out key functions within firms are required to pass the Fit and Proper Test. However, she stressed that individuals and firms must meet these requirements for as long as they carry out financial services activity, and that these are not one-off tests that only apply at the point of authorisation.

Ms Rapson commented:

“Becoming authorised is not like passing an exam. The firm cannot put the books away and forget everything it learned along the way.”

Regarding conduct and culture, Ms Rapson said that when reviewing an authorisation application, the FCA would look at:

  • A firm’s purpose
  • Its leadership
  • Its approach to rewarding and managing people
  • Its governance arrangements

She added that the Government had been stressing the need for greater personal accountability within firms, and that this had led to the introduction of the Senior Managers and Certification Regime.

Summarising her speech, Ms Rapson concluded by saying:

“Our ambition is to continue to improve our approach to authorisation, ensuring that we use it to deliver maximum public value. We will continue to take a proportionate approach to preventing harm. We will continue to use authorisation to help improve conduct, culture and governance in firms. We will continue to be imaginative in our use of authorisation to promote competition and innovation.

“Firms will find it straightforward to engage with us. We will be clear about our expectations of them. “

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