Permission to launch: the what & how of platform permissions

Discover what permissions you might need to run an investment platform and find tips on how to submit your application to the FCA. Download now or read on below...

Permission to launch: the what & how of platform permissions

In this guide, we’ll talk you through the ‘what’ and ‘how’ of investment platform permissions…

Getting started

If you’re reading this guide, it probably means you’re thinking of launching a new investment platform – or embedding an investment proposition within your existing client experience.

But before you can take your first step, you’ll need to get your regulatory house in order and make sure you have the right permissions in place to operate.

The exact permissions you’ll need will depend on many different things – such as the size and scope of your firm, and what services you’re looking to offer – but there are some universal points of reference that it will be useful to know before you make that first step in your journey.

That’s where this guide aims to help. We’ll cover off the permissions you’ll likely need, and explore the pros and cons of acquiring them yourself versus becoming an Appointed Representative of a firm that already holds them.

And, if you choose to apply directly for permissions, we’ll even give some guidance that might stand you in good stead when the FCA come to assess your application. Let’s get started!

What permissions will you need?

It goes without saying that every firm will be a little different, and your particular regulatory position will depend on the nature of your operating model. That said, we think there are several permissions you’ll most probably need.

It might be that you already have these permissions by virtue of your usual course of business (for example if you’re already a discretionary investment manager).

Or it might be that you need to apply to the FCA to have them added (more on that to follow). The exact permissions required will be dependent on your business model and the extent to which you choose to outsource services, as opposed to appointing a third-party provider.

If in doubt, seek expert advice!

What about client money and assets?

You’ll notice that the permissions to hold client money (as opposed to control it) and look after client assets (the ‘Safeguarding and Administering Client Assets’ permission) are absent from our suggestive list. So does that mean you won’t have to?

The FCA defines a platform service provider as “a firm which provides a platform service” (perhaps that much was obvious!).

This is further defined as one which “involves ‘arranging’ and ‘safeguarding and administering’ investments.”

Our opinion is that ‘involves’ does not necessarily mean you need to have the permission to do this activity yourself, but you do need to have control over the appointment and selection of the custodian – and the ability to change this appointment.

In our view, once you’re all set up and you’ve gained the relevant permissions, you can either choose to hold client money and assets yourself (as well as managing the trading activity) or you can appoint a third party such as Seccl to provide the custody (as well as the underlying investment technology).

That said, while we don’t think you’re under any obligation to hold client money and assets yourself, we think it’s important that you understand the role of a custodian, so that you are able to effectively oversee their activities and hold them to account.

After all, if you don’t understand the service being provided, you don’t know what you should expect to see or what questions to ask…

At the risk of teaching granny to suck eggs, then, let’s go back to basics and explore the role, function and responsibilities of a custodian.

What is custody?

In simple terms it comprises…

In other words, it’s the custodian’s job to keep an accurate and up-to-date record of a client’s holdings.

Custodians will also likely carry out other related services, for example the settlement of orders, the management of income arising from investment holdings (such as dividends) and the carrying out of corporate actions.

What are the risks of providing custody?

As you might imagine, the primary risks relate to these core activities outlined above. In other words, there’s a risk that…

How are these risks mitigated

Understandably, the FCA imposes detailed and lengthy rules to mitigate these risks within the CASS sourcebook.

The CASS rules exist primarily to…

“Holding client money involves a considerable amount of regulatory legwork, which is precisely why many new and established advice and investment firms opt to partner with a third-party.”

Holding your custodian accountable

If you decide to appoint a third-party to hold client money and assets on your behalf, it’s important you demand regular and rigorous reporting on the steps they’re taking to mitigate the risks we’ve outlined.

For example, to demonstrate how Seccl is meeting these requirements, we have regular meetings with our customer firms, where we provide the following information:

As you can see, holding client money and assets involves a considerable amount of regulatory legwork, and it’s not without risks. Which is precisely why many new and established advice and investment firms opt to partner with a third-party.

Directly Authorised or Appointed Representative: which is right for you?

When it comes to getting regulated, you have two choices: you can either obtain permissions directly from the FCA (becoming ‘Directly Authorised’), or you can become an Appointed Representative of a firm that already holds them.

There are some key differences to the two approaches…

One of the most distinct differences between the DA and AR model is the application process. Becoming Directly Authorised (DA) can take up to six months, or even longer if the application form is incomplete, which is why many firms opt to use a Principal Firm, at least in the beginning – so they can get to market quickly.

Becoming Directly Authorised by the FCA also requires more admin. You’ll need to supply extensive information including details about your business model, organisational structure, location and resources – both people and financial.

You’ll also need to prove financial resilience in the event of ‘reasonably foreseeable stress events.’ Researching FCA requirements and gathering the information required and applying for permissions can be a lengthy process, whereas becoming an AR could potentially be quicker.

Once you are an AR, there is nothing to stop you moving to a new Principal Firm or becoming Directly Authorised at a later date.

“Becoming an AR is in many ways easier and less time consuming and can certainly help firms get to market quickly.

But there are limitations on the regulated activities an Appointed Representative can do. For example, an Appointed Representative cannot do their own discretionary fund management, even if the Principal Firm holds these permissions.

Alex Henderson

It’s important to spend time researching your options and doing your due diligence, so you make the right choice for your firm.”

Alex Henderson
Seccl’s chief risk officer

Permissions Guide

Summing up: pros and cons

There are pros and cons to each option, and what’s right for you will depend on the size and scope of your business, as well as how quickly you want to get to market.

Pros and Cons of becoming directly authorised vs becoming an Appointed Representative (AR)

Some Principal Firms you might want to consider…

If you decide that your best option is to use a Principal Firm, you’ll want to choose a trusted partner that can not only help you get to market quickly, but keep you on the straight and narrow once you are. To save you some initial legwork, here are some Principal Firms that you might want to investigate…

Resolution Compliance, RiskSave Compliance, P1 Investment

Guidance on applying to the FCA for new or varied permissions

We asked Seccl’s chief risk officer, Alex Henderson, to give her view on how to put your best foot forward when applying to the FCA for new or varied permissions. Here’s what she had to say…

As you would hope from a robust regulator, obtaining new permissions isn’t as easy as simply filling in a form and paying a fee.

Data from the FCA shows that 20% of applications for permissions – whether for the first time or as a variation – are being rejected.

To make sure you’re part of the 80%, it pays to give the application process the thorough attention it deserves, right from the outset.

For example, just because the application hasn’t specifically asked for a particular document doesn’t mean that you shouldn’t send it.

Getting on the front foot with your application can materially reduce ongoing queries and data requests from the FCA.

It’s common for the FCA to issue initial additional queries focusing on business model and financials, followed by a second round of queries focusing on customer journey and vulnerable customers.

You can reduce the potential for this back and forth – which will cause considerable delay and require yet more time and energy on your part – by submitting a thorough and detailed application in the first instance.

Where firms fail to respond to ongoing queries, the FCA publishes enforcement notices, which include details of the information that was requested.

These can be very useful – and we’ve consolidated some of our key observations from these in some high-level guidance around the key themes that the FCA will be looking to assess in your application.

“You can reduce the potential for back and forth – which will cause considerable delay and require yet more time and energy on your part – by submitting a thorough and detailed application in the first instance.”

Alex Henderson__
Seccl’s chief risk officer

Make it easy for the FCA to supervise you…

The FCA wants to be comfortable that it can effectively supervise your business and take action if it identifies risks of harm.

So, as a starting point, you will need to have a registered business in the UK and individuals accountable for activities in the UK will need to be authorised by the FCA – even if they are not based in the UK.

The FCA will also consider the complexity of your business or group structure and the products you intend to manufacture and/or distribute.

Application Tips

Clarify your business model

This is an area where it’s quite easy to trip yourself up. The FCA may use the information provided to challenge other responses on the application and it is common for the FCA to raise additional queries about the business model once an application has been submitted.

Application tips

Stress events – your business model should consider impacts on your business from external stress events, such as COVID 19.

Demonstrate your financial resources

The FCA wants a coherent picture of your financial situation so there are some key basics here to reduce the potential for the FCA to ask for additional information after submission:

Application tips

And your non-financial resources, too

You need to evidence that you have the necessary people, technology and third parties to provide the proposed activities.

Application tips

Customer journey

The FCA will want to understand the customer experience. This should be appropriate for the target market and distribution method you will use.

For example, if your product offering is a bit complex, you’ll need to make sure you provide simple, easily digestible information so your customers can make an informed decision.

Application tips

We would suggest you provide them with:

Business activity specific

Depending on the permissions you are applying for, there may be other information that it is worth including in your application, for example:

Want to know more?

See how Seccl can help

At Seccl, we’re on a mission to rebuild the infrastructure of investments and advice. We provide firms of all sizes with affordable custody, trading and settlement services, feature-rich investment management technology, and a suite of paperless adviser and client portals.

Financial advisers and investment managers can combine these modules to operate their own platform – helping them to take control of their client relationships, improve their customer experience and own more of the value chain.

Elsewhere, technology-first businesses from all sectors can use our publicly documented APIs to get plug-and-play access to the financial markets – helping them to launch new investment propositions more quickly and affordably than ever before.

If you’re looking to develop a new investment proposition, we’d love to hear from you. Check out our demos, browse our API documentation or just book a call with one of the team – we’d be more than happy to help.

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