Hosting Explained
This page aims to explain to you some of the basics of financial hosting in a question and answer format. It also provides information about compliance in general including some of the individual directives and permissions.
If you would like to find out more about something in particular, please contact us through the form on our home page.
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The FCA stands for the Financial Conduct Authority. It is often still referred to, including on its website, as its previous name, the FSA (Financial Services Authority). It is a regulatory body designed to maintain the integrity of the UK’s financial market.
AIFMD stands for Alternative Investment Fund Management Directive. Its focus is primarily AIFMs (Alternative Investment Fund Managers) rather than AIFs (Alternative Investment Funds).
AIFMD came about as a result of the financial crisis to:
- enhance supervisory practices
- enhance investor protection
- be enforced throughout the EEA
The impact of AIFMD varies according to the size of the assets under management.
If the AIF is under £100 million, this is known as ‘small AIF’ and the AIFMD treatment can be summed up as ‘register and report regime’.
If the AIF is over £100 million, this is known as ‘full scope’ and the requirements to comply with AIFMD are more comprehensive.
When an AIFMD is applied for, the FCA is obligated to determine it within three months.
All AIFMs must become compliant with the AIFMD by 22nd July 2014.
MiFID is an EU law that provides harmonised regulation for investment services for the EEA. MiFID’s objective is to increase competition and consumer protection in investment services. MiFID requires the suitability of those conducting the business to be assessed.
When a FCA-authorised firm acts as a host to a client by allowing it to use their own permissions. In doing this, a company can operate in local markets without direct authorisation and it is the hosting company that assumes the risk of these operations. It is therefore integral that the host company is completely up to date with the latest regulations of the FCA else it is responsible.
A company may wish to advise and arrange without performing the investment agreements itself. If this is all that it wishes to do then it can perform two services: that of scoping out potential investment opportunities and advising IMs or that of marketing an IM to potential investors to encourage them to invest in the IM’s fund. This advisor/arranger company will need FCA authorisation before it may perform these functions on its own. In order to not waste the time that it takes for the FCA to give this authorisation, a company may come to a host and perform advising/arranging functions as part of the host's company whilst simultaneously marketing its own company as an AR of Mirabella.
If a company wishes to perform IM functions then it needs to get authorisation to execute operations, permissions which as an AR they don’t get. Frequently those companies which are waiting for IM permissions and trading under the host’s umbrella also join the host as an AR in order to market their own company so that investors remain during the transition from Mirabella to their own IM company name.
The compliance industry is in constant evolution. The regulations are continually being added to and modified. The result of this is time consuming and can stop you focusing on what your company wants to do, be it trading, marketing or advising.
Some companies choose to outsource everything. Often they do this by remaining with a hosting company who covers them with their own regulatory umbrella and will ensure that they remain within the scope of the FCA. These companies frequently do not apply for FCA authorisation at all, preferring to pay for all their compliance issues to be regulated by their hosting company.
Other companies may gain their own authorisation but choose to outsource certain aspects of their compulsory compliance such as risk management. This is often the case of smaller companies who cannot afford the money to hire a delegated compliance officer or outsource everything but neither can they afford the time to do it all themselves. Such a situation is best resolved by splitting their compliance operations externally and internally.
UKCRA stands for the UK Compliance and Regulatory Association. It has four founding members who are each regulatory hosting companies listed on this webiste under the Hosting Firms tab: Lawson Conner, Linear Investment, Capital Systematics Ltd, Hutchinson Lilley Investments LLP. They aim to raise the standards of compliance and publish a code of practice to be adopted by UK hosting firms.
