Guide: Choosing a Regulatory Host
Many small and medium sized financial service businesses choose to become Appointed Representatives of a firm that is directly licenced by the FCA, also known as a (“Regulatory Host”).
This comprehensive guide is designed specifically for firms advising on or arranging deals in private market investments. It provides essential tips on selecting the right Regulatory Host or Principal Firm, helping you navigate this critical decision-making process.
Khepri's Services
At Khepri, our Principal Firm can appoint you as an Appointed Representative, or our Compliance Consulting team can help you get your own licence. Explore our additional resources:
Top 10 Tips for Choosing a Regulatory Host or Principal Firm
1) Confirm the Right Licences
Start by identifying the regulated activities you want to perform. This includes defining the types of specified investments (e.g., shares, debt securities, derivatives) and clarifying whether your clients will be retail or professional.
Legal advice is crucial to ensure your Regulatory Host has the correct permissions. You can check this on the Financial Services Register whether the Principal Firm has the correct Permission Profile.
Tip: Be aware that many Principal Firms do not handle retail clients.
2) Be Transparent and Provide Full Disclosure
Being transparent with your prospective Regulatory Host is essential. Clearly communicate the activities you plan to undertake and how you intend to operate. Key topics include:
How will you acquire customers / investors?
Who are those investors and where are they based?
How do you plan to scale over time?
What investments are you planning to arrange or advise on?
What is the team structure in the UK and how does this interact with any teams outside the UK?
How many CF30s will you have?
3) Understand the Timeline
You should request a clear timeline and project plan from your prospective Regulatory Host. This will help you understand how long it will take to obtain your licence and be entered onto the Financial Services Register as an Appointed Representative of the Principal Firm.
You should be mindful that the FCA has 30 business days to approve Appointed Representatives and up to 90 days for Approved Persons (i.e. individual directors and customer facing individuals). The Principal Firm will likely take several weeks to conduct their due diligence.
Be cautious of firms that promise fast-track registration in less than seven weeks.
4) Assess the Company Culture
Each Regulatory Host will have a slightly different culture. It is beneficial to meet several members of the team in person prior to deciding.
5) Get Advice and Guidance
Some Principal Firms focus solely on monitoring activities, offering limited advice or guidance. If you're a newly-formed business, find out if the firm offers support beyond regulatory compliance, particularly in your early stages.
6) Evaluate Monitoring Systems
All Principal Firms must monitor their Appointed Representatives, but their approaches vary. Ask about the tools and platforms you’ll be required to use and the day-to-day time commitment to meet compliance needs.
7) Conduct Due diligence
Perform thorough due diligence on your prospective Principal Firm. Request references from current Appointed Representatives, and assess the size of their team and their experience with similar business models.
Tip: Exercise caution when considering smaller Principal Firms, as they may operate under the FCA's radar.
8) Review Contracting Terms
While many Appointed Representative Agreements follow standard wording, it's wise to have legal counsel review liability terms to ensure your business is well-protected.
9) Plan for a Smooth Transition
If you're switching from another Principal Firm, make sure your current firm is aware of your plans. Work together to facilitate a smooth transition, which may involve entering into a *multiple Principal Firm Agreement* if individuals transition at different times.
10) Ask Questions
Don’t hesitate to ask questions. Be wary of firms that are quick to present a contract without thoroughly understanding your business needs.
About Khepri
With over a decade of experience and a strong focus on private markets, private equity, venture capital, and real estate, Khepri provides tailored compliance solutions to help your business thrive. Our team works closely with each Appointed Representative to create bespoke monitoring plans, offering the support and expertise you need to grow your business.
Further Reading
Explore more useful guides:
Thinking about switching your Principal Firm?
Contact us at info@khepri.com to learn how we can assist you.
