All financial services firms experience the same hurdle as virtually any other new business: how to influence investors and lenders that your business has a worthwhile model, can create adequate returns and can pay back its liabilities. Candidates for FSMA Part IV Permissions face this challenge and one more; they must convince the regulators of the viability and durability of their business through their planning and preparation.
The RBP is born
A coherent and well-researched Regulatory Business Plan (RBP) is one of the most vital document on the path to reaching authorisation. In fact, many who start the process of starting a new financial services firm hardly ever get as far as formally making an application for the ‘Part 4A Permissions’ expected to start trading; the RBP is simply too weak, incoherently articulated or is not able to demonstrate a robust and viable business model.
In fact, for applicants that achieve success, the process can be arduous and painful; therefore starting with a strong RBP is essential to keeping momentum.
While there is consistently a reasonable degree of uncertainty in how the firm will work, the plan must stay away from including imprecise or unverified information. The RBP should demonstrate that the goals set by the candidate are reasonable, together with financially and operationally manageable.
Although this seems like sound judgment, reality often testifies that it is not that straightforward in practice.
Some basic questions that the RBP must answer
Why you? The RBP could create a poor impression if it does not describe to the regulator its proposed market and comparative advantage: whether it would offer something new to the market and the elements of its services or products that would make them be distinct from their competitors. And the reason that they are best placed to offer and deliver on this proposition?
Them and us: A more competitive idea and promising business case is supported with research and facts. This is a challenging part of the project, the candidate’s RBP must display that there is a market for their product or services, and also bear in mind the competition and their expected share in the marketplace. The RBP must also demonstrate its awareness of the dynamics of the market and how the proposed new firm will meet customer needs.
Known unknowns: Here, the concern is how candidates will approach the problem of partial or unavailable information. Some RBPs are extremely ambitious about their target audience and customers; others are optimistic concerning the costs of running a firm, especially operational risks and mitigation costs and this may lead to expected costs being presented in a superficial manner in the RBP. All projections and estimations must be backed by thorough and trustworthy market research or correct business information.
From a regulator’s perspective, mentioning all the possible expenses and prospective financial needs in the RBP provides a beneficial starting point into assessing business model viability. It also proves that the applicant has a sound grasp of its figures and market. A start-up may not have all the information to-hand on day-one when it meets the regulator, but it should have realistic estimates and a plan of the timeline and actions to obtain this information and must include it into the plan before submitting it.
New entrants will need to describe in their plan how they will abide by complex prudential and conduct regulations. This is not easy,; even the UK’s most established institutions have got themselves into significant difficulties as a result of regulatory breaches.
Many of these breaches could have been avoided if their risk and compliance measures had been proactive instead of reactive and had sufficient resources to do their job initially. Although investment in Compliance is seen as a sunk cost, the inverse is hugely costly and damaging not only financially but also from a reputational viewpoint.
Balancing optimism with pragmatism: without optimism and a belief in the business plan, the process would not even have commenced, but the RBP needs a heavy dose of pragmatism. The regulator sees a large number of implausible, ambitious, cost-heavy proposals that only could generate income if unrealistic growth plans paid off. Unrealistic plans stick out like a sore thumb.
Being clear: Provide only relevant data; an overly long submission filled with generic or irrelevant data will not fulfill the RBP’s purpose to the regulator. In reality, extra detail can disorientate and make the reviewer’s job frustrating. The RBP should only present relevant information that answers the question why the particular candidate ought to be authorised.
So how can candidates maximise their chances to submit a persuasive RBP?
Understand the areas, topics and granularity of information that the regulator expects.
Ensure that the RBP meets the regulatory requirements of the FCA.
Be clear that several iterations of the RBP may be required to be submitted before the regulators direct you to move forward with other submissions
Know the sources and processes to acquire the relevant information and data to estimate and demonstrate their potential position in the market.
The drafting of the RBP should be conducted with clarity and precision, answering directly and precisely possible questions from the regulator.
Make certain that the RBP is effectively linked to all other documents (the financial plan, the ICAAP, ILAAP, risk management framework, corporate governance documents, monitoring plan etc.).
Listen carefully to the regulator. Remarks from the regulator will be some of the most useful advice in helping to adjust an RBP.
Compliance Consultant can arrange for a Business Plan to be created for you, but we will need your data, your Market Research, your perceived Risks and your Operational Plan (including software platform details if applicable) for us to help identify the regulatory elements that will need to be added and highlighted.
Call us on 0207 097 1434 or email firstname.lastname@example.org
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