Appointed representative or direct FCA authorisation?
4th July 2018 2408 - Blog Posts - Knowledge Library
It can be difficult for fund managers to weigh up whether to obtain direct authorisation from the Financial Conduct Authority or whether to use an appointed representative instead. There are pros and cons to both scenarios and in this blog we will examine the advantages of each.
What is the difference between direct FCA authorisation and using an appointed representative?
Obtaining direct FCA authorisation can be a rigorous and lengthy process. To carry out regulated financial activities in the UK, including dealing in investments, discretionary management of assets and advising on investments, fund managers must be directly authorised by the FCA unless they become an appointed representative. An appointed representative is a firm or person who runs regulated activities or acts as an agent for a firm which has obtained direct authorisation from the FCA – in this case Lawson Conner. We are the leading provider of regulatory hosting solutions and appointed representative services, with more than 350 regulated entities launched or operated in the last five years.
What are the advantages of becoming an appointed representative?
The application process for direct authorisation can take up to twelve months, which can be a barrier for smaller or newer fund managers. In addition, direct FCA authorisation can carry a costly compliance burden. Financial compliance is becoming increasingly complex but becoming an appointed representative of a firm like Lawson Conner eases some of the regulatory burden. It offers a much quicker route to market as your fund could be up and running in a few weeks, as opposed to the 12 months that it could take to obtain direct FCA authorisation.
Obtaining direct FCA authorisation can also often involve taking on extra staff with specific compliance expertise which can mean additional cost. With companies currently competing for the best compliance talent – a recent survey from PwC showed that 69 percent of chief executives in the asset and wealth industries were concerned about the lack of key skills – this can be a difficult task in itself.
In the current backdrop of post-Brexit uncertainty, appointed representative services are also particularly useful for firms wishing to conduct regulated activities in Europe. As things stand there is a lack of clarity about passporting rights for financial firms in the case of a ‘hard’ Brexit, but Lawson Conner can provide MiFID passports to our appointed representatives to work in Europe as tied agents which will potentially negate this risk.
What are the advantages of obtaining direct FCA authorisation?
In some scenarios there are advantages to obtaining direct FCA authorisation that are worth considering. The principal of an appointed representative is still required to supervise the appointed representative’s compliance, which will involve been given access to staff, premises and confidential records. And although an appointed representative can market its products and provide investment advice, it is not permitted to manage investments, which can be an issue for fund managers. There are workarounds for this caveat though, that are commonly used. Often, the appointed representative chooses to appoint its principal as the manager of the fund and in turn the appointed representative becomes the investment adviser. A second, less commonly used alternative is for the appointed representative to second staff to the principal, which the FCA will acknowledge as a valid arrangement if it is properly structured. A third alternative involves creating an investment management committee within the principal, made up of staff from within the appointed representative and the principal.
Many firms, particularly newer or smaller venture capital firms, hedge funds, private equity firms and family firms see appointed representative services from Lawson Conner as an excellent opportunity to save money and time, reducing the regulatory burden and making onboarding and continuous monitoring simple with the use of our state of the art technology platform.
To find out how we could provide you a quick and efficient route to market, cushion against post-Brexit uncertainty and help you launch in just a few weeks, contact us today.