UK FCA Registration Requirements for Trading Platforms

Understanding FCA Authorization

The Financial Conduct Authority (FCA) is the UK's primary financial services regulator, and obtaining FCA authorization is essential for any trading platform wishing to operate lawfully in the United Kingdom. In my practice advising trading platforms on UK market entry, I consistently emphasize that FCA authorization is not merely a formality. It represents a comprehensive regulatory framework that touches every aspect of how you operate your business.

The FCA's authorization regime stems from the Financial Services and Markets Act 2000 (FSMA), which establishes the "general prohibition" against carrying on regulated activities in the UK without authorization or an applicable exemption. For trading platforms, this typically means you cannot deal in investments, arrange deals in investments, or manage investments without proper FCA permissions.

FCA Authorization Requirements

The permissions you need depend on the specific activities your trading platform conducts. In my experience, most trading platforms require multiple permissions, and understanding the scope of each is critical to both your application and ongoing compliance.

Core Regulated Activities for Trading Platforms

Investment Types Covered

Your permissions must also specify the types of investments you deal with. Common categories for trading platforms include:

• Shares - Equities, depositary receipts
• Debentures - Bonds, loan stock, fixed income securities
• Warrants - Rights to subscribe for investments
• Contracts for differences (CFDs) - Derivatives referencing underlying assets
• Options - Exchange-traded and OTC options
• Futures - Exchange-traded and OTC futures
• Units in collective investment schemes - Fund units, ETFs
• Rights to or interests in investments - Synthetic exposure

Do You Need FCA Authorization?

The question of whether FCA authorization is required depends on multiple factors. I use the following decision framework with clients:

Key Exemptions and Exclusions

• Overseas Persons Exclusion - Non-UK firms can deal with UK counterparties without authorization in limited circumstances, but cannot solicit UK clients
• Appointed Representative - Act under the authorization of an FCA-authorized principal firm
• Professional or Necessary Activities - Certain activities by lawyers, accountants in the course of their profession
• Intra-Group Transactions - Transactions between group companies may be excluded

Capital Requirements

The FCA imposes significant capital requirements on authorized firms. These requirements are designed to ensure firms have sufficient financial resources to meet their obligations and absorb losses. For trading platforms, the capital requirements can be substantial.

MIFIDPRU Categories

Since January 2022, UK investment firms are subject to the Investment Firms Prudential Regime (IFPR), implemented through MIFIDPRU. The capital requirements depend on your firm's classification:

Permanent Minimum Requirement (PMR)

The PMR is a fixed minimum based on your permissions:

• GBP 75,000 - Firms that do not deal on own account or hold client money/assets
• GBP 150,000 - Firms that hold client money/assets but do not deal on own account
• GBP 750,000 - Firms that deal on own account or operate an MTF/OTF

K-Factor Requirements

Non-SNI firms must calculate K-factor requirements based on specific risk metrics:

• Risk-to-Client (RtC) - K-AUM, K-CMH, K-ASA, K-COH
• Risk-to-Market (RtM) - K-NPR (net position risk), K-CMG (clearing margin given)
• Risk-to-Firm (RtF) - K-TCD (trading counterparty default), K-DTF (daily trading flow), K-CON (concentration)

ICAAP Requirements

All authorized firms must maintain an Internal Capital Adequacy Assessment Process (ICAAP), which assesses the risks your firm faces and the capital needed to mitigate them. I advise clients that the ICAAP should cover:

• Credit and counterparty risk
• Market risk (for dealing firms)
• Operational risk including cyber risk
• Business and strategic risk
• Liquidity risk
• Group risk (if part of a group)
• Concentration risk

Senior Managers & Certification Regime (SM&CR)

The SM&CR is the FCA's accountability framework for individuals at authorized firms. It replaced the previous Approved Persons Regime and imposes personal responsibility on senior managers for their areas of responsibility.

Senior Management Functions (SMFs)

Trading platforms typically require the following SMFs to be approved:

Statements of Responsibilities

Each Senior Manager must have a Statement of Responsibilities (SoR) that clearly delineates their areas of responsibility. The firm must also maintain a Responsibilities Map showing how responsibilities are allocated across the senior management team. Key requirements:

• No gaps in coverage of Prescribed Responsibilities
• Clear accountability for each function and area
• Senior Managers can delegate tasks but not responsibility
• Updates required when responsibilities change

Duty of Responsibility

Under Section 66B of FSMA, a Senior Manager can be held personally liable for regulatory breaches in their area of responsibility if they did not take "reasonable steps" to prevent the breach. This creates significant personal exposure for individuals holding SMFs.

Client Money Rules (CASS)

If your trading platform holds or controls client money or custody assets, you must comply with the Client Assets Sourcebook (CASS). These rules are designed to protect clients in the event of firm insolvency, ensuring their assets can be identified and returned.

CASS Categories

Firms are categorized based on the amount of client money/assets they hold:

Key CASS Requirements

• Segregation - Client money must be held in designated client money accounts, separate from firm money
• Trust Status - Client money is held on statutory trust for clients
• Acknowledgement Letters - Banks must acknowledge the trust status of client money accounts
• Daily Reconciliations - Internal client money reconciliations must be performed daily
• External Reconciliations - Reconciliation with third parties (banks, custodians) at least monthly
• CASS Resolution Pack - Documentation to enable rapid return of client assets in insolvency
• Annual CASS Audit - External auditor must report on CASS compliance

CASS Operational Oversight

Medium and large CASS firms must appoint a CF10a (CASS Operational Oversight Function). This individual is responsible for:

• Oversight of the firm's operational CASS arrangements
• Reporting to the governing body on CASS compliance
• Ensuring adequate systems and controls
• Escalating CASS issues appropriately

MiFID Passporting Post-Brexit

Before Brexit, UK-authorized firms could passport their services across the EU under MiFID II. Since January 1, 2021, this passporting right no longer exists. The implications for trading platforms are significant.

Current Situation

• No automatic EU access - UK authorization does not provide rights to operate in EU member states
• No equivalence decision - The EU has not granted the UK equivalence under MiFID II
• National regime access - Access to individual EU countries depends on their national rules
• Third-country firm rules - UK firms are treated as third-country firms in the EU

Options for EU Market Access

Gibraltar Considerations

Gibraltar-authorized firms previously had access to the UK under passporting. Post-Brexit, the Temporary Permissions Regime (TPR) allowed Gibraltar firms to continue operating in the UK while seeking UK authorization. This has now transitioned to a permanent market access regime for Gibraltar firms.

UK FCA vs. US SEC/FINRA Comparison

For trading platforms considering both UK and US markets, understanding the differences between FCA and SEC/FINRA regulation is valuable. While both are comprehensive regulatory regimes, there are significant differences in approach, structure, and requirements.

Key Differences in Approach

• Principles vs. Rules - The FCA is more principles-based, expecting firms to interpret high-level principles. US regulation tends to be more prescriptive with detailed rules.
• Individual Accountability - The UK SM&CR creates stronger personal liability for senior managers than the US approach.
• Consumer Duty - The FCA's new Consumer Duty (2023) imposes higher standards for retail customer outcomes than US requirements.
• Authorization Scope - FCA authorization covers the full range of activities; in the US, you may need multiple registrations (broker-dealer AND RIA, for example).

Application Process & Timeline

The FCA authorization process is thorough and typically takes 6-12 months. Preparation is key, and I advise clients to allocate 3-6 months for pre-application preparation before submitting to the FCA.

Application Timeline

Key Application Documents

• Application Forms - Core details form, Supplement for relevant permissions
• Regulatory Business Plan - Detailed description of proposed activities, clients, products
• Financial Projections - 3-year projections, capital adequacy calculations
• ICAAP - Internal Capital Adequacy Assessment Process document
• Compliance Monitoring Program - How you will monitor regulatory compliance
• Risk Management Framework - Identification and management of risks
• Governance Map - Organization structure, committees, reporting lines
• Responsibilities Map - SM&CR responsibilities allocation
• Senior Manager Applications - Form A for each proposed SMF holder
• Statements of Responsibilities - For each Senior Manager
• Policies and Procedures - Key compliance policies
• Systems and Controls Documentation - IT systems, operational procedures

Cost Estimates for FCA Registration

FCA authorization involves significant costs, both one-time and ongoing. Based on my experience advising trading platforms, here are realistic cost estimates:

Compliance Monitoring Requirements

Once authorized, maintaining compliance is an ongoing obligation. The FCA expects firms to have robust compliance monitoring arrangements that are proportionate to their size and complexity.

Compliance Function Requirements

• Independent Compliance Function - Must be independent from business activities
• Compliance Officer - SMF16 or SMF17 responsible for compliance oversight
• Compliance Monitoring Program - Risk-based program covering all regulatory obligations
• Board Reporting - Regular compliance reports to governing body
• Breach Management - Process for identifying, escalating, and remediating breaches

Key Monitoring Areas

FCA Regulatory Returns

Authorized firms must submit regular returns to the FCA:

• Annual Controllers Report - Changes to controllers
• Retail Mediation Activities Return (RMAR) - If applicable
• MIF001-007 - MIFIDPRU capital and reporting
• Transaction Reporting - Daily reporting of reportable transactions
• Annual Financial Statement - Audited accounts
• Annual CASS Return - Client assets reporting
• Complaints Return - Semi-annual complaints data

Key FCA Handbook References

The FCA Handbook is the authoritative source for regulatory requirements. Here are the key sourcebooks relevant to trading platforms:

The 11 Principles for Businesses

All FCA-authorized firms must adhere to the Principles for Businesses (PRIN). These high-level principles underpin all FCA regulation:

1. Integrity - A firm must conduct its business with integrity
2. Skill, Care and Diligence - A firm must conduct its business with due skill, care and diligence
3. Management and Control - A firm must take reasonable care to organize and control its affairs responsibly and effectively
4. Financial Prudence - A firm must maintain adequate financial resources
5. Market Conduct - A firm must observe proper standards of market conduct
6. Customers' Interests - A firm must pay due regard to the interests of its customers and treat them fairly
7. Communications with Clients - A firm must pay due regard to the information needs of its clients
8. Conflicts of Interest - A firm must manage conflicts of interest fairly
9. Customers: Relationships of Trust - A firm must take reasonable care to ensure the suitability of its advice
10. Clients' Assets - A firm must arrange adequate protection for clients' assets
11. Relations with Regulators - A firm must deal with its regulators in an open and cooperative way