Threshold Conditions: Making compliance an intrinsic part of your business
The threshold conditions upon which firms must base their business strategy on state at COND1.3.2 (2) G In relation to threshold conditions set out in paragraphs 2D to 2F of Schedule 6 to the Act in respect of firms which are not PRA-authorised persons and paragraphs 3C to 3E of Schedule 6 to the Act in respect of firms which are PRA-authorised persons, the FCA will consider whether a firm is ready, willing and organised to comply, on a continuing basis, with the requirements and standards under the regulatory system which apply to the firm, or will apply to the firm, and for which the FCA is responsible, if it granted Part 4A permission, or a variation of its permission.
Please remember that if your UK firm is part of a larger organisation outside of the UK the conduct of the parent also has an effect as to whether you are satisfying the threshold conditions. For businesses based outside of the UK but with a UK office you should bear in mind the guidance ein COND 2.2.3 which states: Although the FCA will judge each application on a case by case basis, the key issue in identifying the head office of a firm is the location of its central management and control, that is, the location of: (1) the directors and other senior management, who make decisions relating to the firm’s central direction and the material management decisions of the firm on a day to day basis; and (2) the central administrative functions of the firm (for example, central compliance, internal audit).
To effectively comply with the Threshold Conditions you should be aware of the following:
Location of offices (COND 2.2) Where are your offices located. If your company is part of a parent company does its practices comply with the threshold conditions? Is your mind and management in the UK?
Effective Supervision (COND 2.3). Location, can the FCA effectively supervise you if your management is overseas?
Appropriate resources (COND 2.4). Are they appropriate for the regulated activities you undertake?
Suitability (COND 2.5). Are you fit and proper to have such a business? Do your senior managers have adequate skills and experience?
Business Model (COND 2.7) Is your business model suitable for a you carrying on the regulated activities that you wish to carry on? Is the consumer at the heart of your business?
Further, it should be noted that under the new regime there is a duty for a firm to actively engage with the FCA. So if something goes wrong or you are aware of a potentially “bad” practice you disclose it at an early stage. In Cond 1.3.3 G it states: Although the FCA may consider that a matter is relevant to its assessment of a firm, the fact that a matter is disclosed to the FCA, for example in an application, does not necessarily mean that the firm will fail to satisfy the FCA threshold conditions. The FCA will consider each matter in relation to the regulated activities for which the firm has, or will have, permission, having regard to its statutory objectives. A firm should disclose each relevant matter but, if it is appropriate to do so, it is encouraged to discuss it with the FCA. This will enable the FCA to consider fully how material or significant the matter is and how it affects the ability of the firm to satisfy, and continue to satisfy, the FCA threshold conditions. An example of this would be a lender who pre-FCA misused their CPA facility by attempting payments on frequent days for large amounts or by misleading customer’s with their debt collection practices.
To get through authorisation it would be advisable to Disclose (COND 2.5.6 G), take your punishment, actively show your processes have changed and put in place an adequate system of internal control.