The FCA’s recent announcement of a Regulatory Sandbox and greater general support for the FinTech community is a welcome move by the regulators to breach the expectations gap between themselves and the demand for authorisation support from the rapidly expanding FinTech community.
However, despite the continuing operation of the FCA’s Innovation Hub, the new Sandbox and the FCA’s warm words on innovation, the FinTech community need to remember that the regulators will still need FinTech entrepreneurs to meet them, at least half way, if they wish to avoid what may feel like harsh treatment in the assessment of their authorisation applications.
Playing nicely with regulators is not a natural act for FinTech entrepreneurs, but our experience at The Compliance Foundation demonstrates that this potentially turbulent relationship doesn’t always have to end in tears.
Outlined below are our Top Seven Authorisation Tips for FinTech Entrepreneurs:
- Understand Financial regulation and the Financial regulators –Financial Services is a regulated industry and it is really important that FinTech entrepreneurs appreciate and understand the purpose of regulation and the barriers to market entry. FinTech entrepreneurs need to do their homework. Too many FinTechs go large on the Tech and ignore the Financial regulation. This almost always ends up as a potentially fatal business error. Time spent understanding how the regulator works and thinks is time well spent and we highly recommend it.
- Build compliance into the fabric of the business from an early stage – The smart FinTech entrepreneurs understand that, just like in Sim City, building an element of the right infrastructure into your business at an early stage will enable you to flourish and grow in the mid to long term. Not paying attention to regulatory requirements when building systems, controls, processes and procedures is short sighted and will add big costs to the business at a later stage. Unpicking a process, reengineering a culture or even remediating a group of customers can be very costly and can derail your authorisation application. These challenges can be minimised by spending the time required upfront to consider the relevant regulations and building accordingly.
- Engage well with the regulators – Despite the best efforts of the regulator to extend a hand to the FinTech community by creating new “disruption and innovation friendly” units through which to engage with the FinTech community, the regulators are still the regulators. It is vital to understand their mindset, even though to an entrepreneur they are likely to feel fantastically risk averse. Their focus will be on their statutory duties. They will not get overly excited (in the right way) about your innovative product and its potential to revolutionise the FS world if they see risk to consumers. Instead they will be intently focussed on how your business and products will affect the public and market that they are there to protect. To this end, thinking this through and engaging with the regulator in a considered and appropriate manner during the authorisation application process is very important. Understanding how to interface with the regulators can prevent serious delays to your authorisation and keep your business afloat instead of missing its next round of funding.
- Budget for professional support – Obtaining authorisation from a regulator is not a walk in the park. Except in rare instances, it is certainly not something a firm can do for itself without support. Many firms put themselves and their budget forecasts at risk by significantly underestimating their requirements for support from regulatory lawyers, compliance consultants and accountants. Or where using them, asking the wrong questions of the wrong firms in the wrong way. Understanding that you will need help and that you will need to pay for it is a game changer. Plan accordingly when putting your funding plans in place.
- Plan to expand – Success in a non-regulated part of the FinTech world can lead to a desire to rapidly expand into new markets or customer groups with new products that will require regulation. Taking the time to understand the regulatory impact associated with these moves is key, especially for those businesses that have previously avoided regulation. The need to assess the speed, cost and change associated with moving into a regulated market is key and should not be taken lightly. Undertaking an authorisation assessment prior to submitting an application can save time, money and vastly improve the chances of submitting a successful application.
- Generate revenue pre-authorisation – Waiting for authorisation can seem like an eternity to a fast moving FinTech entrepreneur. Therefore, being able to structure the business in a way that can generate some revenue while you wait – even if it is in a very limited way – can often make a huge difference to the short term cash flow and health of a business and can help tide a business over whilst it waits, for what can be over a year, for full authorisation to come through.
- Don’t submit an application that looks like everyone else’s – Finally, when applying for authorisation, it is important to make sure that your application is unique to you and is a fair representation of your business. The FCA is now able to tell which consultancy a business has used by the quality (or lack of it) of the application that has been submitted. The FCA wants to know about you, not just have you sign someone else’s draft. So we recommend working with someone like The Compliance Foundation who will partner with you to ensure your application is really yours and looks like yours.
So, those are the Top Seven Authorisation Tips. If you want advice or support navigating your way through the regulatory jungle then please do get in touch with us directly at firstname.lastname@example.org or via our website at www.thecompliancefoundation.co.uk