As a self-employed financial advisor, you must comply with all FCA regulations. If you don’t, there can be serious consequences. These regulations were put in place to keep you, your clients, and other businesses safe. 

To make sure you don’t accidentally violate any rules, we’ve put together this guide. In this article, we’ll run through:

  • Who are the FCA?
  • What are the current regulations?
  • What happens if you break FCA regulations?
  • How can you comply with FCA regulations?

Who are the FCA?

The Financial Conduct Authority (FCA) are the government body in charge of regulating the UK’s financial services industry

The FCA exists for three main reasons:

  • Protect consumers
  • Keep the industry stable
  • Promote healthy competiton between providers

They do this by imposing various rules and regulations on the industry. 

What are the current regulations?

The FCA regulations keep the industry safe, but what exactly are the regulations? There are too many to talk about in this article, so we’ve picked the most important ones. There’s also a link to the full handbook below

Outside support

For sole advisors, the FCA recommends having a locum. A locum is an individual who can step in and help run your business while you’re away. If you take a holiday, for example, your locum could help keep your business running smoothly

While having a locum isn’t a requirement, if you do use one they must comply with the training and competence regulations

Financial crime

As a financial advisor, you must put effective procedures and control mechanisms in place. These measures are to limit the possibility of financial crime taking place, and must be done to the FCA’s satisfaction

It’s important that you have a strong understanding of how your customers could use your business to commit financial crime. Knowing how it could happen means you’re better equipped to prevent it.

For some ideas on ways to prevent financial crime, check out the systems and controls section of the handbook. 

Client money and assets

If you, as a financial advisor, have control over a client’s money or assets, you must follow the rules in the Client Assest Sourcebook. These rules are put in place to protect a client in case your business fails. 

Just like with HMRC records, you should keep clear and organised FCA records too. These rules include keeping detailed records of a client’s assets, for a minimum of five years. 

Training and competence

In order to keep everyone in the industry safe, the FCA requires all workers to meet a high standard of competence. Training should be regular, and take new changes into account. This includes the marketplace, regulations, and legislation

Extensive records regarding training and competence should also be kept for at least five years

Here’s a section of the handbook dedicated specifically to training and competence

Professional indemnity insurance

The FCA requires businesses to have professional indemnity insurance (PII) in place to protect them in case of third-party claims. 

With PII in place, your business is better protected from insolvency. The insurance makes payment more manageable in the result of a ‘justified claim’. 

Fees and levies

Since the FCA aren’t funded by the government, they charge various fees and levies to finance themselves. The types of fees you can expect to pay are:

  • Authorisation
  • Change in permissions
  • Annual

Authorisation fees must be paid when registering with the FCA. Even if your application is unsuccessful, you still have to pay this fee.

A ‘change in permissions’ fee is for when you want to expand the services your business offers. Changing your permissions is significantly cheaper than initial authorisation fees, and you don’t pay to reduce your services.

Your annual fees depend on three things. The type of regulated activities, the amount of work you do, and how much it costs to regulate. 

If you want to view all of the FCA’s regulations in-depth, you should check out their handbook. There’s also a section just for sole financial advisors.

What happens if you break FCA regulations?

Since the FCA is designed to protect everyone in the industry, there can be some severe consequences to breaking their regulations. 

  • Suspending firms and individuals from regulated activities
  • Issuing fines
  • Making detailed public announcements about disciplinary actions
  • Prosecuting financial crime

This is just a sample of what you can face for breaking their regulations. You can view a full list of the FCA’s enforcement powers here

The FCA also keep a public record of all fines, as well as why the fine was issued. 

The fines can be relatively severe, for example, HSBC were fined about £64 million for breaching money laundering regulations. The amount of fines in 2021 totalled £567,765,219.95

The best way to avoid the FCA’s strict consequences is to adhere to all of their regulations

How can you comply with FCA regulations?

So now that you know what the regulations are and how they can affect your business, how can you make sure you comply with them?

Training

Your first step is to make sure you have enough training. Some activities even have required qualifications. These qualifications have to be presented by an approved accredited body for the FCA to accept them. 

To find out which services need which qualifications, first, check Appendix 1. This is a list of all the services, and whether or not they need a qualification.

If your chosen service does require a qualification, you can find that listed in Appendix 4. The qualification table tells you exactly which courses are suitable for specific activities. 

Record keeping

Just like keeping your business records, you need to store records for the FCA too. These include various training courses, as well as keeping records of client finances you manage. 

Your filing should stretch back about five years, but it can be helpful to keep files for longer.

To keep everything secure and organised, we recommend keeping three copies. One physical file, a digital copy on a hard drive, and one more on the cloud. 

It’s better to update files little and often. It limits the work you need to do and makes it easier to recover the most recent file version. 

Check for updates

The FCA regularly update their regulations, so it’s important that you check back frequently. This can alert you to changes in their regulations, or new courses to take.

Managing your own finances

As a financial advisor, it can be exhausting to manage other people’s finances, then go home and sort out your own. Instead, why not simplify the process?

You can use the Countingup app to automatically manage your cash flow, so you don’t need to worry. Your spending gets sorted into HMRC-compliant categories, and you can manage everything straight from your phone

If this sounds like a great solution, then download the Countingup app for free. 

Grow your business

It’s time to start earning some money. Clients don’t just appear, so you’ll have to find them

Try using our guide ‘how to find clients to get some ideas. We list some of the best methods for you to start gathering paying customers.

You’ll also want to build connections. Networking as a financial advisor can help you develop your skills, or even pass opportunities over to you. 
Use our article as a reference guide. You could even try bookmarking it. That way, you can quickly refer back when you need to.

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