On 3 February 2021, the FCA published an approach document setting out the factors that it will consider when it assesses international firms. The approach document will be relevant when international firms apply for authorisation and when the FCA supervises them. It also sets out the circumstances in which international firms could present higher risks of harm and how those risks might be mitigated. The FCA has also published a Feedback Statement where it sets out the main responses it received to its earlier consultation on the approach document.
In the Feedback Statement the FCA states that:
- It has made a few changes in the approach document (for example in paragraphs 2.10, 3.3 and 3.15), to emphasise that while its expectations are focused on ensuring that activities that require authorisation are appropriately conducted and capable of being supervised robustly, it will consider firms holistically when considering the firm’s suitability to be authorised.
- Some respondents queried if the FCA’s approach applies to firms that do not need UK authorisation to serve UK customers, for example, firms that serve UK customers without performing any activity that meets the ‘characteristic performance’ test, or firms that rely on available exclusions or exemptions such as the Overseas Persons Exclusion. The FCA states that the approach does not apply to these firms (paragraph 1.6 of the approach document). The FCA also adds that the approach document is not aimed at EEA firms that are running off their remaining UK businesses and are not seeking UK authorisation (for example firms under the Contractual Run-Off Regime). However, depending on the circumstances, the FCA may expect firms in the Supervised Run-Off regime (which have ‘deemed’ Part 4A authorisation) to maintain an existing UK establishment where it is necessary for them to perform services under pre-existing contracts.
- Some respondents queried if the FCA should have an expectation of UK establishment and if such expectation could contravene the regulator’s obligations. Some respondents requested “services passporting” to be introduced, similar to the freedom of services passport available within the European Union. As the FCA explained in its consultation paper, it considers applications on a case by case basis, in light of all relevant factors and circumstances. Its expectation that firms seeking authorisation have a UK establishment is based on the existing standards for authorisation (which, in the case of firms seeking authorisation under Part 4A of the Financial Services Markets Act 2000, are the threshold conditions) and in particular its need to be able to effectively supervise a firm’s UK activities.
- Some respondents suggested that financial crime is a major risk that the FCA should consider when assessing international firms, in addition to the three risks that have already been highlighted (retail harm, client assets harm and wholesale harm). The FCA does consider risks relating to financial crime, as well as other risks relevant to the firm’s sector and business model. The FCA mentions that the three risks are not the only ones it considers but has made this clearer (paragraphs 2.11-2.12 of the approach document).