The Financial Conduct Authority (FCA) operates one of the most open and internationally engaged financial regulatory regimes. However, for overseas firms wishing to service UK clients, this openness comes with firm expectations, in many cases, the FCA expects a genuine UK presence, but this is determined on a case-by-case, risk-based basis. Some international firms may be authorised without a UK establishment where the risks can be effectively managed, but this is the exception rather than the norm.
Why Being Physically in the UK Matters
The FCA’s stance is grounded in accountability and effective oversight. The FCA will consider whether a UK branch or subsidiary is necessary based on the nature, scale, and complexity of the UK activities, as well as the firm’s ability to be effectively supervised from the UK. Under SUP 13.3 and COND 2.2, international firms must either be incorporated in the UK or operate through a UK-based branch with meaningful operational substance, a UK ‘location of mind and management’, and not merely a registered address. This requirement ensures the FCA can adequately supervise UK activities and that firms remain within the scope of the UK regulatory framework.
Consistency with UK Standards
Regardless of whether a firm originates from the EU or outside it, the same Threshold Conditions under Schedule 6 of the Financial Services and Markets Act 2000 apply. Following the end of passporting rights after Brexit, EEA firms are now treated the same as other third-country firms and must apply for UK authorisation in line with these Threshold Conditions. These include meeting the FCA’s standards on effective supervision as set out in COND 2.3, appropriate resources under COND 2.4, suitability under COND 2.5, and business model viability under COND 2.7.
The FCA will assess the firm as a whole, covering both UK and overseas branches, when determining authorisation.
Branch vs. UK Subsidiary: Pros and Caveats
When considering the most suitable structure for entering the UK market, international firms often weigh the benefits and drawbacks of operating as a branch versus establishing a UK subsidiary.
A branch offers greater flexibility, as it does not require the capitalisation of a separate UK legal entity. This can make it an attractive option for firms seeking a more streamlined and cost-effective entry. However, the FCA notes that branches present higher supervisory complexities and increased jurisdictional risks, particularly in times of financial stress or insolvency. These risks can create challenges in protecting client interests and ensuring continuity of operations.
By contrast, a UK subsidiary provides greater transparency and control, as it is a distinct legal entity incorporated in the UK. This model enables clearer governance arrangements, stronger local oversight and more defined risk management frameworks. The FCA often views subsidiaries as a more robust option, especially where the firm’s activities involve significant interaction with UK clients or where local decision-making and regulatory accountability are essential. The FCA may refuse to authorise a branch where the nature of the UK business poses material retail or client asset risk, or where a branch model would create unmanageable supervisory or resolution challenges.”
Mitigating Risk: A Core Expectation
The FCA considers risk in three dimensions for international operations, as outlined in its Approach to International Firms and supported by the Client Assets Sourcebook (CASS) and SYSC 4–7 of the FCA Handbook, as well as sector-specific rules such as MIFIDPRU (for investment firms), IPRU-INV, or other prudential sourcebooks, and PRIN 2A where Consumer Duty applies.
- Retail Harm: COND 2.4.4 and CASS 6–7 address potential limitations in redress or asset protection if the firm becomes insolvent. For example, difficulty in providing redress or compensation from overseas regimes, differences in dispute resolution arrangements, or barriers to UK Financial Ombudsman Service jurisdiction.
- Client Asset Harm: which may arise from misalignment between overseas and UK insolvency or regulatory regimes, as covered in CASS 6–7 and CASS 11. For example, delays or inability to return client money or custody assets promptly due to differences in insolvency law or asset segregation rules between the UK and the home state.
- Wholesale Harm: referring to systemic risks that could spread from overseas operations into UK markets, addressed in SYSC 4.1 and SYSC 7. For example, contagion risk from overseas operations affecting UK markets, inability to manage market conduct risks locally, or operational dependencies on overseas systems that could fail.
Firms must demonstrate clear risk mitigation strategies through governance, operational controls, and ongoing supervision arrangements.
Smart Preparation = Smooth Authorisation
- Pre-Application Support (PASS): Use the FCA’s Connect system to request a meeting and clarify requirements, particularly for novel business models.
- Governance and SMCR: Senior Managers must be based in the UK and have authority to take key decisions locally, ensuring compliance with COND 2.3 on effective supervision and the FCA’s ‘location of mind and management’ requirement.
- Operational Readiness: Prepare corporate plans, risk controls, compliance frameworks (e.g., appointing an MLRO) and resource allocation suitable for UK operations from day one.
How Complyport Can Help
The FCA’s UK presence assessment requires both a technical understanding of the Handbook and practical experience of how the FCA applies these rules in authorisations.
Complyport has extensive experience in guiding international firms through the FCA authorisation process and ongoing compliance obligations Our services relevant to this area include:
- FCA Authorisation Support: End-to-end assistance in preparing, reviewing and submitting FCA applications to ensure they meet Handbook and regulatory expectations.
- UK Presence Structuring Advice: Guidance on selecting and establishing the most suitable UK entity model, whether a branch or subsidiary, in line with FCA risk appetite.
- SMCR Implementation: Designing and embedding Senior Managers and Certification Regime frameworks, ensuring senior manager accountability aligns with UK requirements.
- Governance and Risk Framework Design: Developing governance structures, operational controls and compliance oversight tailored to cross-border operations.
- Ongoing FCA Compliance Support: Providing regular monitoring, Handbook updates and regulatory change management to maintain compliance over time.
- Training and Regulatory Awareness: Equipping senior management and compliance teams with up-to-date knowledge of FCA expectations and best practices.
Book a meeting with a Subject Matter Expert: If you are assessing your UK market entry strategy, deciding between a branch or subsidiary, or preparing for FCA authorisation under the UK presence requirement, our SMEs can guide you through the process. We offer tailored consultations to ensure your governance, operational readiness, and regulatory submissions meet FCA standards from day one.
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