Following on from a successful pilot between October 2021 and March 2022, the FCA has now published its ‘Early and High Growth Oversight’ initiative to help firms face the challenges in the early years after becoming authorised. Having seen many firms struggle after authorisation, with the challenges and dangers that this might entail (especially where they experience rapid growth), the FCA’s initiative has been designed to provide firms with enhanced supervision of their activities so they can find their feet in the regulatory sphere, and understand their obligations as they grow. This initiative also helps the FCA to keep an eye on businesses as they transition into fully operational regulated entities, and hopefully avoid the type of consumer detriment associated with issues like overreach (firms growing more quickly than their systems and controls can cope with), or where harm may develop in a very short space of time (see, for example, London Capital and Finance).
The initiative is designed to help the FCA: (i) spot harm or misconduct so it can be addressed (and/or the firm removed more quickly; (ii) raise the standards for newly authorised firms; (iii) promote competition by, for example, assisting firms to understand how to operate where they may not have the same experience and resources as bigger, more established firms; and (iv) improve firm experiences, providing quicker access to the Regulator and increasing and improving engagement. Over the course of 2022 and 2023 the FCA expects to take in up to 300 newly authorised firms. Interestingly, it is not an ‘application’ process; instead, the FCA will decide and contact the firms directly to let them know that they are included. There is no guidance as to who will be included, and it will be interesting to see the types of firms within the initiative over the next couple of years (and whether, for instance, this identifies particular areas of concern).
This initiative puts into practice lessons learned as part of the earlier pilot, in which the FCA saw a number of ‘common themes’. Those highlighted include: understanding around financial promotions (which continues to be an area of current significant interest for the FCA); timely and accurate regulatory reporting; identification of correct regulatory permissions; and the effect of business model changes post-authorisation (and how, for example, this may impact upon the regulatory permissions applied for). Based on this, the FCA has also provided some ‘considerations for firms seeking authorisation’, including:
- making sure that you have read relevant information and guidance (such as ‘Portfolio Letters’);
- registering for access to, and familiarising yourself with, the FCA’s online systems at an early stage; and
- ensuring your engagement with the Regulator remains open and transparent.
If you would like to discuss the above, or any regulatory considerations, please don't hesitate to get in touch.