In this article, Steve Murphy (pictured), the head of financial services regulatory consulting at the multinational law firm of Hogan Lovells, talks to Compliance Matters about the Financial Conduct Authority’s authorisations process in the UK. There has been a surge in the number of authorisations of late.

Murphy began his compliance career at LAUTRO, the Life Assurance and Unit Trust Regulatory Organisation, in the early 1990s. Before going to Hogan Lovells he was a director for the previous nine years in the regulatory consulting practice at PwC. He told Compliance Matters that there were two major barriers in the way of achieving authorisation. The first is the complexity of getting authorized without access to expert knowledge and support. The second is the high cost associated with general applications. The rest of this article is in the form of a question-and-answer session.

Q: What about the first major barrier to authorisation – is expert knowledge absolutely necessary?

A: You don't absolutely need expert knowledge. You must not, however, underestimate the amount of information that you need.

There are 50 people at the moment in the FCA authorisation department. This is partly because there are lots of new reasons for firms to be authorised under PSD2 (the European Union’s second Payments Services Directive). Part of the authorisation process is formulaic but if your information is incomplete, the FCA can knock you back many months.

Q: Is there a surge in authorisations at the moment?

A: There certainly is. Lots of firms are getting reorganised – these are the Paypals of this world. Fintechs are being authorised too, for such things as prepaid cards and e-money. Firms need authorisation when they’re turning themselves into brokers – i.e. becoming the middleman. Monzo is a good example of this.

[Monzo Bank Ltd is a digital, mobile-only bank based in the United Kingdom. Originally operating through a mobile app and a prepaid debit card, in April 2017 its banking licence restrictions were lifted, enabling it to offer a current account. Monzo was one of the earliest of a number of new app-based “challenger banks” in the UK.]

Brexit is contributing to the surge as well – firms are getting authorised for passports now, just to be sure, to get ahead of the curve in anticipation of the hardest of hard Brexits. MiFID reorganisation is also causing firms to go to the FCA for authorisation for various things that would otherwise become illegal for them to do after 3 January 2018.

Q: How can one keep costs down during the authorisation process?

A: If you go and seek advice instead of doing it yourself, it’s costly. What isn't very visible (we're more aware of it at Hogan Lovell’s) is the fact that the firms offering help are very variable. Some are run by incredibly grizzled ex-compliance officers. Others are fintech firms themselves. There are law firms also. Costs are quite variable. Hand-holding services are on offer, while other firms offer a basic, up-front "here's what you need to do" kind of service.

Q: What kind of firms want what kind of service?

A: Hand-holding services are for firms that come in and just have a great idea and that's it. They are generally still looking for finance. Some firms come to us...they already have offices, they have business plans in place to get their finance, they’ve also got compliance people in place. They'll go for more basic support.

Q: What do you think of the FCA’s pioneering ‘regulatory sandbox’ for fintech start-ups?

I think it’s a positive. I've been around since the days of LAUTRO. The world of advice is my background. I know that it’s very important for the FCA to be aware of new ideas so they can think about them. Firms in the sandbox are already authorised and (you might be surprised to hear this) not all of them are new firms. It's authorisation first, sandbox afterwards.

Q: Does your firm have any software that can help people with authorisations?

Yes it was relaunched this month, with slight adaptations. It's called Hogan Lovells Engage and, among other things, it has a packaged FCA authorisation application service for FinTechs. It’s a hub on our website (type in hlengage.com) where firms can come together. Hogan Lovells built it in partnership with Innovate Finance (which helps fintech firms) and are their sponsors.

It’s primarily designed for fintech firms but any firm can use it. They needn't be walked through them. There’s a MiFID tool and a PSD tool as well.

The authorisation tool is a precursor to actually applying. It asks you a series of questions – have you got a registered address, name, business plan? It asks if you have the things you need to have ready to apply. Then it says right, we think you are at the point when you're about to apply. It also suggests things we can do to support you, then you can fill in a three-box form and we arrange a meeting.

* Steve Murphy can be reached on on +44 20 7296 2000 or at steve.murphy@hoganlovells.com