What is Regulatory Hosting and How Does it Work?

Regulatory hosting enables businesses to carry out regulated activities without directly being FCA approved.

For firms offering regulated services such as credit brokering, investments and banking, the FCA approval process can be both costly and time consuming. Hence, many businesses look for regulatory hosting as an alternative that allows them to act under the hosting umbrella of another approved firm, often paying a licensing fee for the benefit or offering a percentage of their business.

Using a regulatory host can be very useful for businesses who wish to carry out regulated services but are awaiting approval for their own license. Or perhaps, it is more timely and cost effective to use another company’s license, minimising administration and lowering risk too.

With regulatory hosting, the client will become an Appointed Representative (AR) of the Host Firm (Principal). The AR will then be able to carry out regulated activities under the FCA approval of the Principal, using their guidance.

What Are The Advantages of Using a Regulatory Host?

A fast route to the market is often available through a regulatory host, since you can get approved and be trading legally within a few weeks, compared to submitting a lengthy application process to become FCA Authorised, which can take between 6 – 12 months, or longer.

Affordable – Using a regulatory hosting company can allow you to enter the market at affordable rates, whether it is paying a monthly fee or giving up a share of profits or equity in your business. By comparison, the set-up fee for FCA authorisation can be between £1,500 – £25,000 per year, or more, depending on the size and complexity of your business.

Compliance expertise is available from the host firm, since they have a license already and have been through the motions. Whether you offer investments, finance or insurance, they can assist with several components including legals, business model, marketing and more.

Establish a good relationship with the FCA which will help if and when you decide to become individually FCA authorised.

What Are The Downsides of Using a Regulatory Host?

Operating under a regulatory host comes with responsibilities and you have to comply with the recommendations of that host company. Plus, any implications from your activity will also impact that of the host, positive or negative, so you have to ensure that you are always staying on the right side of regulation, even if that means not taking risks.

Trust is a big factor, so you need to respect your regulatory host and vice versa, since all policies, procedures and records will be supervised and kept on file by the company. For some companies, it may not be ideal to have another firm knowing all their numbers and business activity.

As an appointed representative working underneath someone else’s host, you cannot manage your own investments. So if this is a requirement, you may fall short in this area.

Finally, whilst the licensing fees or giving up equity may be cost-effective for some, it may be expensive for others. If your business takes time to get off the ground, you may be lumped with high fees to pay each month. Or if your business really takes off, you could find yourself giving up equity each month which may not be ideal.

An AR cannot directly manage its own investments – the Principal must do this. However, an AR can market its products and provide investment advice.