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FCA publishes details of common application shortcomings for prospective asset managers

20 May 2024

By Harry Barnes, Senior Compliance Consultant

The FCA has published details of the common errors made by firms applying for authorisation as an asset management firm, as well as details of approval rates for applications. Here, we break down the common shortcomings and how firms can ensure that their applications are in the best position to be successful.

Common errors

The FCA identified a number of common errors that applicants should avoid when applying for authorisation for asset management activities.

Inexperienced senior management

In some applications, the senior management lacked the competence and expertise to undertake the Senior Management Function (SMF) which they have applied for. Some candidates have not previously held the same SMF function and were, when questioned by the FCA, unable to explain the regulatory framework their business was subject to or could not explain how the firms proposed business model would work.

Office location outside the UK

It’s a threshold condition for all FCA-authorised firms to have the mind and management in the UK including taking decisions about portfolios, distribution and the oversight of outsourced activities. It’s not enough to have back-office functions in the UK, or to have decision makers visit the UK periodically.

Exposing clients to risk

Some applicants fail to identify the risks posed by their business model or to adequately consider and evidence how they might mitigate those risks. Some firms have proposed business models which the FCA feel pose too high of a risk to retail clients, with the FCA highlighting that applicants who aren’t fully implementing or considering the Consumer Duty are unlikely to be successful.


Some applicants don’t consider that the firm will ultimately still be held responsible for all outsourced activities and should have adequate oversight of all outsourced activities.

Conflicts of interest

Asset managers often exercise control over their clients’ assets and money, giving rise to potential conflicts. Some applicants fail to consider and identify all potential conflicts of interest prior to submitting their application and should have planned how to avoid and mitigate all identified potential conflicts of interest.

Consumer protection schemes

Some applicants seek exemptions from being covered by the Financial Ombudsman Service or Financial Services Compensation Scheme where this is not appropriate, increasing the time taken for the application to be decided.

Unready applicants

The FCA expects all applicants to be ready, willing and organised to carry out the regulated activities for which they apply for authorisation to carry out. Some applicants were not ready when submitting their application, including firms that hadn’t recruited necessary SMF holders or arranged for sufficient regulatory capital to be in place. Some applicants sought to change their proposed business model significantly after submitting their application, and the FCA noted that such firms should consider withdrawing and reapplying at a later date when fully ready.

Statistics around asset management authorisations

Between 1 April 2023 and 1 April 2024, the FCA determined the outcome of 310 applications for authorisation in the asset management sector, of those:

  • 253 (82%) were approved by the FCA
  • 54 (17%) were withdrawn by the applicant in light of FCA concerns around the application
  • 3 (1%) were rejected by the FCA due to poor quality information

The FCA also noted that 56% of applications were determined in under six months, and 73% within eight months of application submission, with the FCA stressing the fact that applications with less complete or clear information were those that took longer to reach a decision for.

What needs to be done?

Prospective asset management applicants should review the FCA’s observations alongside the FCA guidance for investment management applicants and the recent portfolio letter to asset management firms to determine what the firm needs to have in place before submitting its application for authorisation.

How IQ-EQ can help

We have an experienced authorisations team who have assisted prospective asset management firms of various sizes and with diverse business models in applying for authorisation to the FCA. Our compliance consulting team also work closely with our asset management clients with regard to their compliance obligations, including in considering the FCA’s most recent portfolio letter to asset management firms.

To discuss the FCA’s expectations for asset management applicants or find out more about the support available from IQ-EQ’s expert compliance consulting team, contact us today.

Working with IQ-EQ has been seamless – you and your team understand our business, advise us appropriately, and handle your side of our collective partnership so that we can focus on making good investment decisions. Evan Gibson SVP, Merchants Capital

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