(NOTES) 1Scope of Permission required
Application for Authorisation
Supplement for firms selling investments and home finance– notes
FCA Application for Authorisation Supplement Release 8 July 2018page 1
(NOTES) 1Regulatory business plan
1 / Regulatory business planWe need to know about the business the applicant firm intends to carry on so we can ensure it is authorised for the correct regulated activities, investment types and client types, and to assess the adequacy of its resources.
We see the regulatory business plan as an important regulatory tool for the applicant firm and us in measuring the applicant firm's business risk and control over any regulatory concerns. You can find further information about this in: (for firms which are not common platform firms) and SYSC 4 10 (for common platform firms).
Bearing in mind the threshold conditions, we need to be satisfied that the applicant firm can:
• identify all regulated activities and any unregulated activities it intends to carry on;
• identify all the likely business and regulatory risk factors;
• explain how it will monitor and control these risks; and
• take into account any intended future developments.
Please remember that the applicant firm's regulatory business plan is an important part of the overall application and integral to our decision-making process. It is important that the regulatory business plan is tailored to the applicant firm’s activities. The amount of detail submitted should be proportionate to the nature of the business the applicant firm intends to carry on. For example, a small firm seeking to carry on a business with a risk you perceive as low, should have a smaller and less complex business plan than a business plan for a complex high-risk firm. The level of detail should also be appropriate to the risks to the applicant firm's clients.
Providing an incomplete or non-specific regulatory business plan is likely to result in further questions and the application may take longer to be determined as a result.
You can find further information about our requirements and expectations for business plans at
Background
1.1 You must provide a regulatory business plan. It is important that this is tailored to the applicant firm’s business, otherwise it may lead to delays in the authorisation process.
No additional notes
1.2 Is the applicant firm leaving a network?
We need to know this in case you are subject to a notice period. An applicant firm cannot be authorised by us and be an appointed representative at the same time.
Type of mortgage business to be undertaken
1.3Please confirm what type of mortgage business the applicant firm proposes to undertake?
No additional notes
Mortgage Credit Directive (MCD)
1.4Will the applicant firm be a tied MCD credit intermediary?
No additional notes
Consumer buy-to-let (CBTL)
1.5 Does the applicant firm also want to register as a consumer buy-to-let (CBTL) firm?
No additional notes
Services
1.6What services will the applicant firm be offering to its customers?
- Independent – a personal recommendation to a retail client about a retail investment product where the personal recommendation provided meets the requirements of the rule on independent advice (COBS 6.2A.3 R).
- Restricted:
(a) a personal recommendation to a retail client about a retail investment product which is not independent advice; or
(b) basic advice.
- Simplified – a personal recommendation to a retail client about a retail investment product that is a simplified advice process that may be about a specific product recommendation. This would typically be an automated, process-driven advice service because it does not consider all retail investment products that may be suitable for a customer. This may be appropriate for customers who have their priority needs met, have some disposable income or capital to invest, or do not want a holistic assessment of their financial needs.
- Basic – the regulated activity, specified in article 52B of the Regulated Activities Order (Providing basic advice on stakeholder products), which is providing advice on stakeholder products using a process that involves asking a retail client pre-scripted questions.
If a firm is considering not recommending any specific retail investment product type set out in the definition of a ‘Retail Investment Product’ in the Handbook, then it cannot hold itself out as fully Independent.
An applicant firm should, in the course of submitting an application for Part 4A permission, be able to demonstrate that it has sufficient understanding to establish whether the advice it proposes to recommend to a retail investment client is independent, restricted, simplified or basic advice. An applicant firm should be able to demonstrate that its advisers have reached the required professionalism standards through qualifications and CPD. An applicant firm should be able to demonstrate the transparency of its charging structure to comply with RDR standards.
All business activities
1.7 Does the applicant firm intend carrying on any unregulated business activities?
No additional notes
1.8 You must estimate the percentage and value of total business that will be:
•Execution only
•Advice without subsequent arranging
No additional notes
1.9 How will the applicant firm be remunerated?
No additional notes
1.10How many clients does the applicant firm expect to have in relation to its regulated activities?
No additional notes
1.11What are the main business risks for the applicant firm and how does it intend to manage those risks?
Here are some examples then should be considered, depending on the nature of the applicant firm’s business:
External risks:
The applicant firm should:
- identify competitors and assess their reaction to the applicant firm's presence in the market, if applicable; and
- consider critical economic factors which should then be analysed and assessed. For example, it may be useful to explore the effect on the applicant firm's business if there were large-scale local redundancies, a recession in the economy, low interest rates or limited demand for its products/services.
Internal risks:
The applicant firm should:
- undertake a sensitivity analysis of various scenarios and the possible outcomes (this could be a reduction in business or an equally large increase in business – for example, towards the end of a tax year);
- consider how the applicant firm would manage if it lost key staff;
- prepare and maintain a contingency plan that deals with the applicant firm's identified key risks.
1.12Will the applicant firm have any branches in the UK that intend conducting regulated activities?
No additional notes
1.13Does the applicant firm intend to carry on any regulated activities in another EEA state by:
• provision of cross border services, and/or
• establishment of a branch, and/or
• appointing a tied agent.
If the applicant firm has any plans to carry on business activities in other EEA countries, please note that once authorised it will need to complete:
• a 'notification of intention to provide cross-border services into another EEA state' form; and/or
• a 'notification of intention to establish a branch in another EEA state' form for a branch.
This must be submitted using Connect. You can also find further information on our website:
1.14You must give details of the geographical location and residency status of the intended clients the applicant firm is planning on dealing with and how the information will be captured and retained/monitored.
Whether an applicant firm is giving retail investment advice to a retail client in an EEA country and whether RDR applies.
Outsourcing with third parties
1.15What functions (if any) will the applicant firm outsource?
No additional notes
Fair treatment of customers
The information required in this section is underpinned by our Principles (e.g. Principle 6, which states that a firm must pay due regard to the interests of its customers and treat them fairly). It is central to delivering our regulatory agenda as well as being a key part of our move to more principles-based regulation. We believe how a firm intends to treat its customers to be a key part of its programme of operations.
The FCA websitegives straightforward, easy-to-read information about the fair treatment of customers, including the consumer outcomes we are looking for and supporting publications (
1.16.1How has the fair treatment of customers influenced the development of the applicant firm’s business plan?
No additional notes.
1.16.2How will the applicant firm’s senior management ensure that:
- fair treatment of customers, in particular vulnerable customers, is embedded in the culture of the firm, and
- it can demonstrate that the firm is consistently delivering fair outcomes to consumers?
No additional notes.
1.16.3What have the management of the applicant firm identified as the key risks in its model that might affect its ability to treat customers fairly?
No additional notes
Non-advised sales (investment business only)
1.17Will the applicant firm be carrying out non-advised sales?
No additional notes
1.17.1What controls are in place to ensure staff do not provide advice when answering Questions?
No additional notes
1.17.2Please provide details of any scripts or guidance provided to staff and details of any controls in place to ensure staff adhere to the scripts.
No additional notes
1.17.3How does the applicant firm ensure clients are clear about the service being provided to them?
No additional notes
Non-mainstream pooled investments (NMPIs) including Unregulated Collective Investment Schemes (UCIS)
1.18Will the applicant firm promote NMPI? This will generally include advertising, advised and non-advised sales.
No additional notes
1.18.1 The promotion of NMPI to retail investors is severely restricted. What controls are in place to ensure that NMPI are only promoted to eligible customers?
No additional notes
Platforms
Platform charges
Where an applicant firm is a platform service provider, it needs comply with rules set out in COBS 6.1E and 6.1F, including disclosure of total platform charges to retail clients in a durable medium before services are provided. Platform charges are fees set by the platform itself for its services and agreed with clients. Platforms cannot accept payments from providers, with limited exceptions. The inducements rules in COBS 2.3 are also relevant.
Movement of customer portfolios between platform service providers
Where an applicant firm is a platform service provider, it needs to ensure it can comply with COBS 6.1G, on re-registration of clients’ assets to another platform ‘within a reasonable time and in an efficient manner’.
1.19Will the applicant firm be using a platform(s) to administer its client’s investment portfolios?
No additional notes
1.19.1How has the applicant firm assessed the risks posed to it and to its clients by the use of platforms? What risks have been identified, and how will the applicant firm manage those risks?
No additional notes
1.19.2What conflicts of interest have been identified and how will they be managed?
No additional notes
1.19.3What Management Information (MI) will be collected in relation to these clients?
No additional notes
1.19.4How will client investment reviews be managed and carried out for these clients?
No additional notes
1.19.5How will the applicant firm deal with clients for whom the platform used may not be suitable, or who would not benefit from the use of platforms?
No additional notes
1.19.6Please provide details of any ongoing training need identified for advisers and how it will be met.
No additional notes
Mortgage business
1.201For mortgage and other home finance business, please provide details of the applicant firm’s anticipated spread of business for the first 12 months of authorisation in the following categories.
No additional notes
1.21Will the applicant firm be carrying out execution only sales?
Refer to MCOB 4.8.A for the conditions which must be satisfied for a firm to enter into or vary a regulated mortgage contract with a customer, or arrange such a transaction for a customer, without giving advice, or where the advice given by the firm has been rejected
1.21.1 Firms are required to have an execution policy. You must confirm that the applicant firm has an execution policy in place.
No additional notes
1.21.2 How does the applicant firm ensure clients are clear about the service being provided to them?
No additional notes
1.22Has the applicant firm or any of its advisers ever been removed from a lender’s panel?
No additional notes
1.23Will the applicant firm use ‘introducers’ for new business?
No additional notes
FCA Application for Authorisation Supplement Release 8 July 2018page 1
(NOTES) 2Scope of Permission required
2 / Scope of permission requiredBackground
When applying for authorisation you are responsible for ensuring that the regulated activities requested adequately cover the activities the applicant firm intends to carry on.
You need a Scope of Permission Notice that matches the applicant firm's needs and covers every aspect of regulated business it wants to carry on.
Getting the applicant firm's permission notice right at the outset is fundamental. In the event that the applicant firm is authorised with the wrong permission notice, it will be breaching our rules.
The permission notice shows the range of regulated activities the applicant firm will be authorised to carry on, as well as the investment instruments and type(s) of customer it can deal with for each specific activity. It will also contain what we refer to as 'requirements' and 'limitations'. In broad terms, limitations are restrictions placed on specific regulated activities (e.g. not to deal with retail clients) and requirements will be placed on the activities of the firm as a whole to take or not to take specified actions (e.g. not to hold client money).
If the applicant firm carries on a regulated activity that is not set out in its permission notice it could be in breach of the Financial Services and Markets Act 2000 (FSMA) and subject to enforcement action.
Wording of the Scope of Permission Notice
The Scope of Permission Notice will follow the wording in the Perimeter Guidance PERG 2 (Annex 2). You can find this at:
Clients
2.1 What type of clients will the applicant firm carry on business with?
You need to tell us this so we can continue building up a picture of the type of business the applicant firm will be carrying on. We will use this information, among other things, to assess the applicant firm's risk.
If the applicant firm wishes to limit one or more of its activities to a certain type or types of client, it can do so by selecting the relevant client type, and in doing so apply for an appropriate limitation.
The table below gives a list of the available client types for designated investment business:
Regulated business category / Client type / Link to full Glossary definitionDesignated Investment business / Retail / You can access the definition in the Handbook Glossary, see link below:
Professional / You can access the definition in the Handbook Glossary, see link below:
The table below gives a list of the available customer types for the respective categories of regulated business relating to home finance mediation. That is mediation activities in relation to mortgage mediation activity, home purchase mediation or home reversion mediation activity:
Regulated business category / Client type / Link to full Glossary definitionHome finance mediation / Customer /
Permission profile
How to choose which permission notice to apply for
2.2 Which permission profile does the applicant firm wish to apply for?
You must select one of the standard permission profiles for your type of business (on page 11 and 12 of these notes)
The applicant firm may not actively use all the investment types in the permission profile but it is permitted to do these if it wishes to.
One of these permission profiles holds client money and one does not.
Permission Profile 1 is an example of an authorisation that would be held by an applicant firm that:
- is a personal investment firm;
- advises on and arranges mortgage products; and
- does not hold or control client money.
Permission Profile 2 is an example of an authorisation that would be held by an applicant firm that:
- is a personal investment firm;
- advises on and arranges mortgage products; and
- does hold or control client money.
Client money rules do not apply to firms holding client money for mortgage business.
Finally, please be aware that these details are recorded on our Financial Services Register, available on our website.
2.3-2.9Tick the boxes of the additional regulated activities the applicant firm requires
To complete this section you will need to indicate in Questions 2.3 -2.9 of the permission profile section whether or not you require any other regulated activities (these additional regulated activities can be found on pages 13-19).
2.10The permission profiles include standard limitations and requirements. If the applicant firm wants other limitations or requirements on its permission notice, please give details here.
Do I need to limit the scope of any activities?
Limitations are specific to a particular regulated activity and will restrict the way it is carried out, in some way.
A limitation may come about as a result either of a request by you or a decision by us to impose one.
Should any requirements apply to the applicant firm's permission?
Limitations apply to specific regulated activities (see above) whereas requirements apply to the firm's permission as a whole. Requirements aim to ensure a firm takes or does not take a specified action, for example, the firm must not hold or control client money.
As with limitations, a requirement may come about because you request it or we decide to impose one. If it is the latter, we will discuss this with you when processing your application.
Standard limitation – regulated mortgage contracts - limited to second-charge business only
2.11Does the firm want to apply for a limitation on each of their regulated mortgage activities limiting them to second charge business only?
Limitations are specific to a particular regulated activity and will be restrict the way it is carried out in some way. A limitation may come about as a result of a request by you or a decision by us to impose one.
Permission Profile 1
Permission profile 1 is an example of a permission that would be held by an applicant firm that:
•is a personal investment firm; and
•advises on and arranges mortgage products; and