Developing new technologies, creating new business models, and launching a Financial Services app is tricky. A complicated regulatory framework is doubly difficult.
If time is on your hands – think a year to eighteen months – then an entrepreneur might consider Direct Authorization. This is the traditional approach. It has the advantage of FCA employees analyzing the new firm’s product, team and controls, and the person launching their firm will have a direct relationship with their regulator. In reality, applying for authorization and being authorized are different things.
Pitfalls
The drawback with this approach is often the cost and the lack of control over timings. Authorization can often take over a year, delaying the time to market and revenue, not to mention running up unexpected costs.
For the entrepreneur launching a new firm, it is not always clear if their business model sits under the watchful eye of the FCA. And if the business does need to be FCA regulated, it can be murky waters to navigate. This is where a compliance platform or regulatory incubator can help.
A regulatory incubator and accelerator will know the FCA handbook, and in particular the Perimeter Guidance Manual, which determines which businesses need to be FCA regulated. These specialist companies will know what permissions you need, how you can build compliant, customer friendly products and aid your route to market.
There Are Solutions
However, there is another option. Many start ups and even established firms entering new markets choose to become an Appointed Representative (AR) by using a principal firm. A principal firm specializes in sponsoring an appointed representative’s regulation and accelerates their route to market. An AR doesn’t apply for regulatory authorization directly. Instead, they are supervised by the principal firm, which has the relevant permissions. The regulator will hold the principal firm accountable for any failings in the AR’s activities. The process for becoming an AR is measured in just weeks, with the principal firm often advising on compliance and operational issues - lowering the Fintech firms’ costs.
Many small firms (pre-seed to seed and bootstrapped start-ups) lack the resources for a Direct Authorization and look to the regulatory incubators who act as principal firms, to speed up access to the market.
We’re currently seeing firms large and small look at the regulatory incubation approach. Firms like Shares.io (the new Pan-European broker backed by Peter Thiel) and Lightyear rely on principal firms like RiskSave to lower execution risk and accelerate their route to market.
RiskSave Technologies is an award-winning accelerator and compliance host acting as a principal firm. We are B-corp certified, meaning we meet the highest standards of verified social and environmental performance and public transparency. We aim to accelerate ten selected partners every year.