FCA Rejected Application for Authorisation or Registration? What are the FCA approval requirements?

Running your own business with the requirements for you to understand marketing, sales, IT and technical as well as legislative requirements has never been so intense; especially so in financial services businesses.

If you have received a “minded to reject” email from the FCA, you are obviously disappointed but now what?

There are primarily two options for you.

When the regulator issues a “minded to reject” email, it is their style to adopt this approach so that you have options on how best to approach the event.
1. You can withdraw your application. This can simply be achieved by sending an email to that effect. This, incidentally, carries no stigma or black mark in any way,
2. If you do not withdraw your application, the FCA will initiate refusal proceedings. This involves issuing a Warning Notice and publishing a Decision Notice on their website setting out our assessment and decision-making of the firm’s application. This may affect future applications from the firm and individual.

You have an option to refer your case to the Upper Tribunal, but depending on the reasons for rejection, this would often not be recommended.

So let’s explore this option further.
What happened to referring to the FCA’s Regulatory Decisions Committee?
What is the Upper Tribunal?

To answer those two questions, we need to look at the events as they unfolded in 2021.

• To increase efficiency and as part of its wider Transformation Programme, the UK Financial Conduct Authority (FCA) has changed the way that it makes key decisions about firms and individuals.
• These changes impact contested Authorisations and Registrations, Supervisory interventions and whenever the regulator seeks to commence civil or criminal proceedings.
• The changes are controversial primarily because the FCA’s Regulatory Decisions Committee, long considered a safeguard of independence and a certain standard of decision-making, will now not normally be involved in these areas.

Why were the changes made?

To expedite decisions to prevent or stop consumer harm, the FCA has implemented a controversial change to its decision-making procedures. The change forms part of the FCA’s wide-ranging “Transformation Programme”, a Brexit hangover of the EU’s financial services reforms that we were caught midstream as we left Europe, which seeks to make the regulator smarter, more proactive and more agile.

There has been a considerable amount and wide-ranging criticism across many industry sectors of the FCA in respect of recent high-profile business failures on its watch, most notably the failure of London Capital Finance (LCF) in early 2019. Dame Elizabeth Gloster’s review of the circumstances of the LCF failure included significant recommendations for the FCA that the regulator has accepted without protest. Indeed, the FCA has in some senses seemed to have seized this moment of criticism to reorganise itself and to push through significant and controversial reforms, in the name of self-improvement. However, some of these changes may risk unfair, unaccountable, and bad decision-making. Many would say that the increase from 1 in 14 applications were rejected in 2020 to 1 in 5 in 2022 were a direct result of this.

Historically, the Regulatory Decisions Committee of the FCA (the RDC) has operational independence from its other functions. Its remit has been broad, from decision-making in Enforcement cases to whether the FCA should commence civil or criminal proceedings. Albeit the RDC is frequently over-burdened and consequently inevitably slow, its independence and the ability (in many circumstances) to make oral representations directly to the Committee make it a symbol for fair and accountable FCA decision-making.

However, the role of the RDC is limited, with immediate effect, to dealing with significant misconduct cases where the alleged misconduct has already occurred and there are (often complex) issues of law, fact, and sanctions to be resolved. The role of the RDC in respect of such cases remains. In respect of other areas of decision-making, where harm has not yet occurred or is ongoing, the FCA will usually now make decisions through its executive procedures; these procedures themselves have been reformed in the name of greater agility.

This change impacts:

• Contested applications for FCA Authorisation or where the cancellation of FCA Authorisation is contested by the business.
• Intervention in regulated businesses by the FCA by Supervisory Notice.
• The decision by the FCA to commence civil or criminal proceedings.

In these specific categories the FCA will retain a strict separation of the decision makers and those gathering the relevant evidence to support the decision. However, the ability to make oral representations is now consigned to “exceptional circumstances” only. These are circumstances where the delays generated by written representations are unacceptable or where the relevant person or firm cannot make written representations. Therefore, in most cases, the respondent only will be able to make written representations in what is likely to be an factual or empirical matter for their business and/or livelihood. The worth of any written representations also has been dealt a blow and devalued in that the FCA will not give disclosure of communications between the staff recommending action and the decision-maker (something that is usually disclosed in respect of RDC decision-making). Therefore, it will be harder for respondents to address any hyperbole, legal or factual errors executed by FCA staff.

Decisions made under the FCA’s executive procedures in this way can be challenged by reference to the Upper Tribunal. This now has all the time and cost implications that any High Court litigation might entail. The upshot of this is, whilst robust and independent, the Upper Tribunal does not offer swift justice and accountability, and it will not be something that everyone can avail themselves of, even if the any quotient of harm resulted by a bad decision can be meaningfully rectified by a successful reference. Whilst the number of references to the Upper Tribunal may therefore increase as a result of these changes, any significant tidal wave of cases would be unlikely.

What happens after you have withdrawn your application?

• Obviously you will get a confirmatory email and this then leaves you to pursue other options.
• Once you have completed any required training in the areas they say you have been weak on, review your application and reapply.
• You can recruit someone with the necessary skills within your business, you can readdress review your application and reapply.
• If you are already an AR, remaining as such until you feel confident enough to address the raised issues, then re-apply after reviewing your entire application.
• Remain as an AR.

It is always best to take time to reflect, but if you want to discuss the options or your next steps, please contact us or click on the banner below and arrange a video call to discuss your next steps.