Regulatory Approval R.A.T. Maze

Run a regulated business within financial services, consider familiarising yourself with the Approval R.A.T. Maze.

Flavours of regulatory registrations and approvals on the FCA website quickly run into double digits and there is a sea of acronyms that will have your head spinning for days. Statements like – For PSR compliance the best route [for you] would be AISP then PISP before going for your PI licence – are commonplace in the world of payments for instance.

To simplify this labyrinth of regulatory permissions, we group regulated activities into three main categories:

  1. Transactional: getting approved to execute a financial transaction. In this case, customers know exactly what they are getting and the “time-to-benefit” is short. E.g. FX and payments.
  2. Advisory: getting permission to provide advice on financial products. In this case, customers defer decision making to an expert and the “time-to-benefit” is not immediate (months if not years before investment pays dividends). E.g. Investment advice and insurance broking.
  3. Risk: getting authorised to take on risk from the market. In this case, it’s more about financial stability (i.e. the firm takes risk sensibly) and ensuring the customer is well informed of their obligation for transferring risk to the financial institution. E.g. Issuing Credit and underwriting insurance.

Thinking back to regulatory objectives – policyholder protection (Treating customer fairly) and financial stability (don’t go bust and leave your customers hanging), it is easy to see why approval for Transactional services is much easier than Advisory vs. Risk (which also requires the firm to hold capital – rainy day funds).

However, as you make your way through the Approval R.A.T Maze from T all the way to R, your profit margins increase since you are able to offer a more substantial service from a defendable position, since not every business has the capability or the appetite to make it through the R.A.T. Maze.

If you are planning on taking the R.A.T. Maze head on, get in touch to see how CoVi Analytics can help you through it.

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