The approval times for advisory and other financial firms expanding into new business lines in the UK has gone up by 85% in the past two years.

The time the Financial Conduct Authority (FCA) takes to authorise a financial services business adding an additional business line has increased by 85% in the last two years - 18.5 weeks in the last quarter of 2014, up from 10 weeks in the first quarter of 2013, according to the City law firm of RPC. The firm says that the additional time taken by the FCA for these approvals is most likely as a result of greater scrutiny by the regulator of firms' business plans and resourcing before giving its approval for firms’ new offerings.

Financial service businesses that want to expand into different business lines, adds RPC, must apply to the FCA for a ‘variation of permission’, allowing it to engage in new regulated activities. RPC says that under the Financial Services Authority in 2007 these types of approvals took little more than a month, but the current regulatory regime is much more stringent.

The firm says that although the FCA is keen to prevent failures at financial firms by imposing stricter regulatory controls, firms are finding it increasingly burdensome to comply. RPC explains that there is a natural tension between a firm's need to trade and the desire of the FCA to curb failures at firms. The major fault lines tend to relate to how much excess capital the FCA wants assigned to the new business line in question and the number of staff that that new business line should have.

Wherever firms choose to set up new service-line companies through subsidiaries, the FCA tends to demand high levels of capitalisation to insulate customers against potential losses. RPC says that this can undermine the businesses' return on capital, making new ventures less profitable. Another area of friction with the regulator is the higher number of operational and compliance staff required in order to meet the regulator's expectations – with obvious cost implications for the business.

A new business line represents an inherent risk, which cannot be entirely regulated away. The law firm fears that if the cost of obtaining 'permissions' begins to be prohibitive, it will dock the choice that investors can make.