The Financial Conduct Authority has launched an initiative to provide support in the first few years for newly authorised firms.
The approach, called 'Early and High Growth Oversight', has been introduced by the regulator following a "successful pilot".
The FCA said firms can face challenges in meeting their regulatory obligations in the first few years after authorisation, therefore its scheme will provide closer support for 300 newly authorised businesses by the end of 2023.
Firms do not need to apply to be part of scheme but will instead be contacted by the FCA directly if they are included.
The regulator will provide enhanced supervision for firms as they get used to their regulatory status and support them to understand what is expected of them as they grow.
It will also seek to identify and address harm developing in newly authorised firms quicker.
Emily Shepperd, executive director of authorisations at the FCA, said: “Following a successful pilot, we are rolling it out to 300 firms this year to support them in meeting our expectations while they start up and grow.
“In line with our new strategy, this work raises standards, helps us to spot and act on potential harm sooner, and promotes competition.”
The City watchdog said the scheme will also help to achieve its key areas of commitment that were highlighted in the most recent business plan.
These include: reducing and prevent serious harm through close supervisory engagement and taking action to deal with problem firms, setting and testing higher standards by ensuring newly authorised firms and firms scaling quickly are meeting their regulatory requirements and promoting competition and positive change by understanding the challenges these firms face at critical stages of their life.
Common themes
The FCA piloted the scheme with 32 newly authorised firms across a range of sectors from October 2021 to March 2022.
It worked with firms to help them improve their understanding of regulatory requirements and make changes where needed.
Some of the common themes included financial promotions, regulatory submissions and permissions, financial projections, business model changes and innovative firms.
Firms new to financial regulation are required to complete and submit regulatory data in a timely way and, where these are incorrect, firms must make re-submissions, taking up additional time and resource.
The regulator said it helped the firms in this area which led to timely and better quality regulatory submissions during the pilot.
The FCA found some firms hold permissions that they do not use, or that they may have applied for incorrectly, but it was able to show these firms how to correctly use their permissions.
Firms also often change or adapt their business models in the first years of their life which can affect the permissions they should hold and the regulatory requirements they must comply with.
The FCA said: “Two firms cancelled their permissions following our challenge and upon fully understanding their regulatory obligations. We closed down a firm that was part of a wider organisation carrying out regulated activity without authorisation and worked with the firm to ensure that funds were returned to all customers.”
Prior to receiving permissions from the regulator, firms are required to submit business plans.
“As they start to trade, they may find that their actual revenues do not reasonably track against their projections,” the FCA said.
“We worked with firms to understand how their businesses were performing and to make sure they had appropriate plans.”
The FCA surveyed firms to ask about their experience in the pilot and said of the 29 firms that responded, 87 per cent said they were 'satisfied' or 'very satisfied' with their overall experience.
It also received feedback on the frequency of data requests it sends to firms.
The FCA said: “We have considered the feedback and have made appropriate adjustments to the frequency of data we will collect of firms in Early and High Growth Oversight.”
sonia.rach@ft.com
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