How to become FCA authorised
The Financial Conduct Authority became responsible for regulating consumer credit in the UK on 1st April 2014, taking over from the Office of Fair Trading.
The FCA provides a guide for consumer credit that all participating firms must follow and there is also the Consumer Credit Sourcebook (also known as the CONC) which has a list of conduct standards that companies must adhere to.
Compliancy is king
So for any company that offers loans, insurance or investments, it is essential to have the compliance and regulatory framework in place to start or continue trading in their industry. Companies in our industry of guarantor loans looking to gain authorisation were initially granted ‘interim permission’ as a short-term license with the option to cease trading or apply for full permission. In Q1 and Q2 of 2016, companies were granted full permission or ‘authorisation’ including several lenders featured on our website.
If you carry out credit and financial regulated activities without authorisation, it can lead to serious fines and imprisonment.
Our guide below answers some of the most common questions regarding FCA authorisation and we provide the information you need to apply:
Do I need to be FCA authorised?
If you offer consumer credit or certain financial products, you are required to have FCA authorisation and this includes:
- payday loans
- guarantor loans
- logbook loans
- insurance companies
- investment providers
Here is the full list of regulated activities:
Can I be FCA registered instead of authorised?
Some firms that are considered ‘low-risk’ can just need to be registered rather than fully authorised. This includes the middlemen such as payment service provides, technology providers and community lenders such as co-operative societies and men’s clubs.
Charities and not-for-profit organisations such as credit unions require different regulation under Prudential Regulation Authority.
Who is exempt from FCA authorisation?
Professional firms: Solicitors, lawyers and accountants that work with insurance companies and lenders do not need to be authorised but it runs alongside their main business.
Appointed representatives: This refers to individuals, websites or companies that have been appointed by a company with a full license to carry out regulated activity. This is common for affiliate sites, introducers, brokers and comparison sites (like this one).
Local authorities: and some housing groups that run insurance mediation or mortgage activities.
The application process
You can apply here for authorisation.
Some of the main features of the application process include having:
- a business plan
- capital requirements (enough money to lend out)
- checks for the most important members of the company
A core details form – this requires factual information about the business structure, controllers, management and personnel. Information on systems and controls, including business continuity.
Supplement for investment managers – this covers the applicant’s regulatory business plan, customer types and investment strategy, and the scope of regulatory permissions required. This form also needs you to provide information on your financial resources and cash flow projections, further detail on personnel and compliance arrangements.
Individual Forms – This is for individuals who will be performing “controlled functions” (called Approved Persons; see below) who are responsible for running the organisation, making key decisions and passing on a compliant culture throughout the company.
Essentially, the FCA needs to confirm that the people running the company are fit and proper to handle the responsibility.
IT Controls Form – for those firms who are more dependent on IT systems, and will need to provide supporting documents including organisational charts/ financial information / compliance procedures, etc.
How long does it take to become FCA authorised?
It can take up to 12 months to received FCA authorisation and you should receive some initial feedback within 6 months.
The application process is characterised by a lot of checks and administration and to speed things up, several firms will hire professional experts and compliance professionals like Robert Quinn Consulting to help carry out the process.
How much does an FCA authorisation application cost?
There is a fixed fee of £5,000 to submit a moderately complex application – but how much you pay depends on the complexity of your business:
- straightforward (£1,500)
- moderately complex (£5,000)
- complex (£25,000)
There are additional costs for start up costs, expert adviser costs and capital costs too. Read more here.
Why FCA authorisation is important
The consumer credit industry in the UK regularly attracts complaints as our recent blog post reported thousands of complaints in the payday loan industry over the last year. It is important that every applicant and customer is treated fairly and that they do not give their personal information to companies that use it inappropriately.
With strong regulation in place, it increases consumer confidence in the industry and means that customers can apply for insurance or loans without fears of upfront fees or their data being sold to lots of third parties.
If you ever want to know that a company is FCA authorised, you can check the register on the main FCA website and match up the company you are looking to apply with. You can also look out for the license number on the footer of every site and there should be other characteristics too such as the Representative APR clearly displayed on the site to provide transparency and policies for complaints, responsible lending and treating customers fairly.