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FCA admits ‘work to do’ as backlogs remain for authorisations

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The Financial Conduct Authority’s boss has admitted the regulator has work to do when it comes to its authorisations process.

Speaking to the Treasury Committee about the work of the FCA yesterday (December 9), chief executive Nikhil Rathi said there were still some issues around authorisations.

MPs questioned Rathi on the delays faced by firms, outlining examples of where the FCA had only begun to take action for a firm at 11 months when the entire process should take 12 months.

One of the main areas of complaints from financial technology companies and others, has been around delays with authorisations.

An example given at the meeting was about a company that applied for three separate FCA licences on December 5, 2020 and was not assigned a case officer until March 2021.

In November 2021, 11 months into a 12 month authorisation process, the team at the FCA concluded that the different applications were intrinsically linked and there was not enough time left to go through it.

Another example was a FinTech company that applied for an appointed representative regime and was told the response time was 48 hours. This then led to a week, followed by 10 working days and then the deadline was left altogether.

“Now these things will be frustrating for big companies, but for smaller startups, it’s existential because if they don’t get the licence, they live hand to mouth cash wise to try and raise money,” the MPs said. “If they don’t get the approvals then they may simply go out of business.”

However, Rathi responded: “These are different sets of issues so firstly, I would recognise that there are backlogs in our authorisations queue which apply to all firms and we’re working hard to address those.

“We are in the process of recruiting 100 new colleagues in those areas and over the medium term, we will make that process more digital and I hope over the next year, we will crack most of those.”

He asked the committee to draw its attention to the recommendations of the Gloucester review and some of the recommendations that the regulator has adopted, which included taking a more holistic view at the point of application, being more inquisitive, more demanding and looking at financial resilience.

“That necessarily means more grit in the system because we learned the lesson that if you allow a firm in at the gateway, which isn’t adequately meeting the standards, that can cause quite a lot of issues further down the track,” he said.

Fintech firms

Looking at fintech firms, Rathi said the regulator was seeing a whole range of firms, with some that are genuinely innovative and competitive, which the FCA wants to support.

“The others are more challenging,” he said.

“If I look at the work we’re doing with crypto exchanges, where they come to us for money laundering registration – the reality is that nearly 90 per cent of those have either withdrawn or we’ve refused because we see a serious link to money laundering and serious organised crime being propagated through crypto exchanges.”

He said the FCA has allowed 17 crypto firms through but it’s been “a very challenging set of conversations”.

“We’ve had to be more rigorous with the e-money firms because it’s not always clear, particularly for vulnerable customers who use some of these electronic walls, that their money is not protected by the FSCS if things go wrong.”

Rathi explained the FCA has had to take a “demanding stance” with some of these e-money firms in order to protect vulnerable customers who may be using them.

He said: “We have some work to do, that I would accept, but I would say that we are in a world where we are putting more grit in the system and some of that is deliberate and that applies right across the board.

“There is always the balance we’re trying to strike and we hope that we can make it proportionate.”

Giving the example of London Capital & Finance, he said it was a representation of how a small firm can do harm.

He added: “One of the criticisms we received was that we weren’t inquisitive enough, we weren’t demanding enough and we weren’t probing enough on a whole range of issues. Part of the issue we also deal with is that sometimes the applications that come to us don’t have all the information we need and sometimes there is resistance to providing additional information in response to our questions.

“This is going to be a learning journey for us and I can imagine that some firms will find some of the questions we are posing uncomfortable but I think but that is the direction we are going in and I hope that we can strike the balance.”

 

Source: FT Adviser

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