The Corporate Finance regime in the UK consists of firms that offer various financial services and provide financial advisory services to corporate clients, such as companies, businesses and institutional investors. The requirement for regulatory approval for such firms arises because their activities typically involve handling sensitive financial matters and making recommendations that impact capital markets and investment decisions. These activities could range from advisory services on Mergers and Acquisitions (“M&A”), capital raising, debt restructuring and other financial matters.
Corporate Finance Regulated Activities
The relevant FCA-regulated permissions that fall under the Corporate Finance authorisation are:
- Advising on Investments – Includes advising investors on the buying, selling or subscribing of shares, debt instruments or other securities.
- Arranging Deals in Investments – Corporate Finance Firms (“CFFs”) often arrange (but do not execute) deals in financial instruments on behalf of clients, such as share or bond offerings, or mergers and acquisitions.
- Agreeing to Carry on Regulated Activities – Not considered a regulated activity itself. It is only when a legally binding agreement is entered into to provide the services related to the activity that it becomes regulated.
- Making arrangements with a view to transactions in investments – Refers to the regulated activity of facilitating the buying, selling, or subscribing for investments by other parties. It involves ongoing arrangements that aim to enable transactions in financial instruments.
Additionally, in order for a firm to be classified as a CFF, they will need to apply for a requirement ‘not to conduct designated investment business other than corporate finance business’. A CFF is also required not to hold or control client money.
When applying for authorisation, it is crucial to ensure that the correct and specific permissions are chosen based on the firm’s business model and offerings. A thorough understanding of the FCA Corporate Finance regime and which specific permissions apply to each firm is essential.
Other Considerations
Generally, all firms must meet the FCA’s threshold conditions, including ensuring adequate financial resources, suitable management and compliance with regulatory requirements.
As part of the application, certain individuals must be appointed to undertake Senior Management Functions (”SMFs”) and be responsible for key areas of oversight within the firm. The specific SMFs required will depend on the chosen permissions, structure and size of the firm.
All individuals chosen to apply for the SMF roles must meet the FCA’s Fit and Proper Test (“FIT”) requirements, including integrity, competence and financial soundness, and possess adequate knowledge of the firm’s activities, structure, business model and systems and controls.
Exemptions and Limited Permissions
There are a few types of firms that could potentially engage in FCA corporate finance activities without requiring the full FCA authorisation if they meet certain criteria. However, these firms must still adhere to relevant FCA rules regarding client protection, conduct and prudential requirements.
- Article 3 Exempt Firms (MiFID Exemptions)
Article 3 of MiFID II provides an exemption for firms whose business is limited to giving investment advice or receiving and transmitting orders without holding client funds or securities. This exemption is intended for smaller firms or firms offering certain limited services that do not pose a systemic risk to financial markets. However, Article 3 exempt firms must still register with the FCA and comply with certain conduct of business obligations and prudential rules but they are not required to be authorised under MiFID II.
- Activities with Retail Clients
It is unusual for CFFs to engage in business with retail clients; however, the FCA has highlighted the below provisions in case dealing with retail clients is required:
- Apply for a requirement limiting their engagement with retail clients to corporate finance business only.
- If a CFF intends to carry out Non-Corporate Finance activities with retail clients, the firm will not qualify as a Corporate Finance Firm and will have to consider other wholesale types of applications.
Conclusion
Successfully navigating through the FCA’s authorisation process is essential for any firm operating in the UK’s Corporate Finance sector. Securing the necessary and correct permissions ensures firms are legally compliant and trusted by their clients, the market and the Regulator.
By adhering to the FCA’s rigorous standards, firms demonstrate their commitment to integrity, financial stability and excellence in service delivery. This authorisation opens doors to a wealth of opportunities within the UK’s financial markets, providing a solid foundation for sustainable growth and success.
Moreover, FCA authorisation signals to clients and investors that your firm operates under the highest standards of regulatory oversight, fostering trust and confidence. The ongoing support and guidance from the FCA ensure that your firm remains compliant and well-positioned to navigate the complexities of the financial landscape.
In essence, obtaining a Corporate Finance authorisation is a testament to your firm’s dedication to maintaining the highest levels of professionalism and ethical conduct. It is an investment in your firm’s future, paving the way for long-term success and market leadership.
With extensive experience in FCA compliance, regulatory consulting, and risk management, Complyport has helped numerous firms traverse the complexities of FCA authorisation and meet their ongoing regulatory obligations. From initial application support to ongoing compliance management, our expertise ensures that Corporate Finance firms not only meet regulatory requirements but also uphold the highest standards of conduct, helping them build lasting trust with consumers and operate confidently in the regulated financial services market.
Complete the form below to book a FREE consultation.
Ask ViCA, your Virtual Compliance Assistant. Claim your complimentary 20 queries today!
