Financial service innovators need the FCA’s permission to operate in the UK, but this can take months. The FCA offers compliance advice but innovators can also borrow permissions from regulated umbrella companies to speed up the process.

Regulatory compliance can be a headache for FinTech start-ups concerned about the time and expense involved in waiting for the Financial Conduct Authority (FCA) to give them the green light to trade.

It is a criminal offence to conduct most financial businesses without FCA approval, which is needed to demonstrate that UK and EU regulations are being met.

Yet many new businesses, including some crowdfunding websites, do not even realise they need to be regulated by the FCA which means they are operating illegally.

One option for start-ups worried about compliance is to work with the FCA’s Innovation Hub.

Its experts help entrepreneurs to understand the regulatory framework and how it applies to them. They also provide advice on preparing a compliance application.

The FCA has already published guidance on crowdfunding and peer-to-peer lending. It has applied core consumer protection requirements for firms to protect investors considering lending to individuals or businesses.

The launch of the new Payments System Regulator (PSR) in April 2015 enables payment service firms to follow the regulator’s lead. The PSR is a subsidiary of the FCA.

Another option for entrepreneurs is to work with an umbrella company that is already FCA regulated and which can lend the permissions it has to a promising FinTech start-up.  

It means a new entrant can trade and grow immediately, testing and proving its business model while staying within the law.  It also receives valuable compliance advice and training while waiting for interim FCA permissions and then full FCA approval.

Outsourced compliance firms already exist, providing appointed representative services to FinTech start-ups that want to use their regulatory technology to ensure they are FCA compliant and not acting illegally.

 “We are getting calls on a daily basis from FinTech firms that are not regulated and need to launch quickly. We lend them our Permissions and in a way act as their parent,” says Kession Capital co-founder Steven Garner.  “We tell them what they need to do and how to do it so they are compliant.”

 “We stop being an appointed advisor once a business becomes FCA approved but many firms end up not wanting to be independently regulated because of the costs of employing a compliance officer and the capital they need. So they enter into an on-going agreement with us whereby they rent our FCA badge,” says Garner.

Garner says that one of the reasons the FinTech industry has flourished in the UK is because of its regulatory regime.

The FCA is a European regulator which permits companies to operate across all EU member states.

The picture is more fragmented in the USA, for example, where different states have their own regulator and local laws.

“This makes it difficult and expensive for firms to operate effectively and efficiently.”

The UK government has stated it wants to support businesses that challenge the traditional banks and other financial service providers.

This is helping the UK to lead the world in innovative financial products and services, but new players still need to ensure they are compliant to not only operate legally but to build credibility.