Sentinel Regulatory Services news & information

Firms new to the UK’s financial services markets face a steep learning curve as they contend with unfamiliar regulations and terminology. This complexity effectively leads to expensive and time-consuming barriers to entry.   However, we have set out below a high-level overview of the key choices open to new UK entrants:

1. Remain outside the regulatory regime either by restricting your new business activities or by relying on an exemption.  A small representative office might restrict its activities to ensure it does not perform any regulated activities in specified investments.   For example, by simply making local introductions or performing research for internal use, neither of which is necessarily a regulated activity.  Alternatively, certain exemptions for intra-group or corporate finance activities may be used.  However, we would strongly advise that you seek legal advice in each case.
2. Direct FCA authorisation to ensure your firm can perform all the activities its UK business might require. This is a non-trivial decision involving a significant commitment of both time and resources.  An FCA authorisation may take anywhere between 6 and 12 months from preparing you application, submitting it to the FCA and awaiting a FCA Case Officer whose role is to perform due diligence on your application.    Moreover, once authorised, your journey into FCA regulation will only have just begun as it requires more time and resources to ensure continuing compliance, most notably: a registered Compliance Officer and Money Laundering Reporting Officer, holding significant regulatory capital, regular compliance monitoring, training, and reporting to the FCA.
3. Appointing a Hosting Platform such as becoming an Appointed Representative (“AR”) of a Principal that is itself directly FCA authorised.  Other options include Alternative Investment Fund Management (“AIFM”) and Management Companies (“ManCo”) for firms requiring discretionary investment management permissions for Alternative Investment Funds (“AIF”) and Undertakings for Collective Investments in Transferable Securities (“UCITS”).  Deciding which platforms suits best will be driven by the activities you plan to perform in/from the UK, staffing, your products, and target markets, Sentinel Regulatory Services Ltd (“Sentinel”) offers an Appointed Representative Hosting service, which we explore in more detail below.

 Sentinel’s Appointed Representative Hosting Service

The Appointed Representative model is an option suitable for firms providing investment advice, arranging transactions, and receiving and transmitting orders all of which are FCA regulated activities. It also allows for marketing and distribution activities, so it particularly suits smaller firms, overseas entrants into UK markets, those who need to enter the market quickly, or those who want to assess the market before plunging in with a direct FCA authorisation.  The AR route offers significant advantages to such firms and greatly adds to the flexibility of UK financial services markets.  It means new entrants into UK markets could obtain FCA regulatory permissions within as little as 5 weeks.

Firms unfamiliar with the AR regime, sometimes question its acceptability and how it works on a day-to-day basis.  The short answer is that the AR route is a longstanding and recognised solution by using the FCA regulatory permissions of the authorised firm (which is known as the Principal) that appoints the AR.

What types of firms does it suit?  In summary, ARs may provide investment advice, arrange transactions and receive and transmit orders, which activities we have seen used by:

• Closed ended fund advisors (including Private Equity/Venture Capital/Real Estate and Credit),
• Corporate finance,
• Hedge funds (mostly UK based marketing staff),
• Firms distributing investment products.
• Family Offices providing services to third parties,
• Small Rep Offices that might become involved in regulated activities from time to time.
• Start-ups testing their product in the market.
• Firms winding down portfolios.
• Foreign firms wanting to enter the UK market quickly for the first time.
• Foreign Pension fund offices

Sentinel was founded because we believe The AR route provides much needed flexibility for new entrants into UK markets and helps reduce the prevailing high barriers to entry. Direct FCA authorisation may suit some firms over the longer term (Sentinel offers an FCA Authorisation service), but the AR route offers flexibility, accelerates, and simplifies market access while helping firms navigate local markets and learn UK regulations under Sentinel’s expert guidance and supervision.

What are the benefits of becoming an AR?  Sentinel, as Principal, is responsible for ensuring that its ARs remain compliant and act within Sentinel’s FCA permissions.  ARs not only benefit from Sentinel’s FCA permissions to continue their business but also their advice, local knowledge, experience, and resources to mitigate their UK regulatory risks.  In practical terms this means:

• Sentinel has the direct FCA regulatory relationship including providing regulatory capital, regulatory reporting, FCA related administration and fees.
• Sentinel registers its own Compliance Officer and Money Laundering Reporting Officer.  So, there is no need for ARs to hire those skills.
• Sentinel provides all compliance materials (compliance manuals, policies, training, and advisory support)
• There will be no need to appoint third party compliance advisors because that forms a key part of Sentinel’s service.
• Sentinel will liaise and perform regular compliance monitoring and produces reports commenting on AR compliance.
• You do not need to appoint an auditor although you may prefer to.
  Sentinel will help you become directly FCA authorised and provide continuing support should you wish to take that step.
• Alternatively, should you wish to wind down your business you may provide Sentinel with 3 months’ notice whereas directly authorised firms take much longer to terminate their FCA registration.

In summary, the decision to establish a new financial services business in the UK inevitably involves many moving parts: tax, legal entity type, structure, human and financial resources, technology and compliance with local laws and regulations.  Given our experience, Sentinel is in the best position to advise on the most appropriate regulatory option, which can be time critical for turning your plans into reality.

Ian Manson, October 2024

Please contact Alex, Ian, or Lauren at Sentinel to discuss our Appointed Representative and direct authorisation services.

Sentinel Regulatory Services Ltd is authorised and regulated by the Financial Conduct Authority.

This article is directed at Professional clients only and Retail clients may not rely on it.