August 12, 2019

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Navigating The UK’s Financial Services Regulatory Landscape

- Lesley Wan, General Counsel [ FBN Bank (UK) Limited ]
- Steven Francis, Partner [ Addleshaw Goddard ]


The regulatory environment is a fierce one, but the risks can be managed if investors focus on four imperative issues: culture, regulatory relationships, governance and people

The UK city of London has taken full advantage of its membership of Europe’s single market to become the pre-eminent financial services’ center in Europe, possibly in the world. It would though be no surprise if Brexit (the UK’s departure from political Europe) caused Indians to view investment into the UK with caution. But despite that, the UK’s Office of National Statistics has said that in 2018, Indian investment into the UK was up 321% from the year before. And the financial services sector attracted more Indian investment than any other sector, accounting for 28.8% of the total.

While the timing may seem surprising, the UK and India have always viewed each other as sympathetic jurisdictions in which to do business. The UK is respected for its open and non-discriminatory business environment, the quality of its legal system and its ability to combine a rigorous approach to customer protection with enough pragmatism and flexibility to provide comfort to business owners and managers that their needs will be met. India is viewed by the City as its first choice for the outsourcing of a range of operational and technology activities. Many people in the UK are enthralled by the dynamism and flexibility of the Indian commercial community.

As we hope to explain below, City institutions are likely to remain attractive businesses for Indian investors, but there are traps for the unwary and issues that need to be carefully considered.

First the good news. There are no laws in the UK governing or restricting foreign investment. Foreigners or foreigncontrolled companies are treated in law exactly as UKowned businesses are, and may engage in most forms of economic activity. What is more, most Indian investors find that there is a rich pool of advisors available who can assist them in navigating UK requirements. Many City law firms and consultancies (including the Big 4 and other smaller firms) will give free counsel to those contemplating entering the UK’s financial services market.

There are already a significant number of Indian investors who have set up UK-based financial services’ firms. These have included specialist banks, private equity firms, insurance intermediaries and asset managers. Notwithstanding the increasingly burdensome regulatory landscape, many Indian investors continue to acquire substantial stakes in UK-regulated businesses. UK establishments generally take the form of separately capitalized UK companies. The regulatory environment is a fierce one, but the authors believe that the risks can be managed if investors focus on four imperative issues: culture, regulatory relationships, governance and people.


The UK’s regulatory environment can appear one of internecine complexity, almost impossible to navigate. But the key is to put in place the right culture. If culture is right, compliance will follow.

The tone is set from the top. It is the responsibility of the senior management team to take the lead and drive a positive and supportive culture where its employees are comfortable that the organization they work for will behave ethically, not solely motivated by the bottom line.

For banks, the UK’s conduct regulator is the Financial Conduct Authority (FCA) and its prudential regulator, the Prudential Regulation Authority (PRA). Many firms become obsessed with the challenge of complying with the FCA’s and PRA’s detailed and highly prescriptive rules, most of which are derived from European directives. So they employ expensive compliance, internal audit and training teams to teach staff what the regulations require of them. But a better practice is to explain to staff why the rules are as they are, don’t treat them as morally neutral requirements, but as cultural imperatives. Specialist staff are still needed, but their role is primarily as an enabler and not an enforcer.

Regulatory relationships

Many in the UK treat the PRA and FCA like capricious Greek Gods. But in our view, the regulators are staffed by down to earth individuals who want the same things that we all want: respect, transparency and decent personal relationships with colleagues and staff of the firms they regulate.

The regulators’ role is to oversee and manage relationships with regulated firms. It is important for senior management to build an open and trusted relationship with the regulators, and demonstrate that they have a good understanding of the regulatory environment in which they are operating, and can be relied upon to act quickly to rectify issues that arise in their business.

Senior management must ensure that they keep the regulators abreast of important issues that arise in the normal course of business. There is an expectation that the regulators will be informed promptly of any such matters which they could reasonably expect notification. Taking these steps also gives them assurance that you take the regulatory regime and your obligations seriously and are working cohesively alongside them to achieve the right outcomes.

But a balance needs to be struck. Regulators are not infallible. Courage is needed to challenge them where the firm believes they have exceeded their powers or misapplied the rules.


A common mistake made by overseas owners is to treat the UK entity like a business division of its Indian parent. This might seem sensible, but it causes problems.

The UK regime operates a regime known as the Senior Managers and Certification Regime (SMCR). The objective behind SMCR is to place regulatory responsibilities not just on the regulated entity, but on its staff and senior management. Senior managers are personally approved by the regulator.

SMCR has three important consequences. First, senior management will need to have a high degree of local expertise, in particular, if the business is intending to service retail customers. Second, the board of the UK business must truly direct its affairs. And finally, while the Indian investor will have influence over the conduct and activities of the UK company, that influence will necessarily fall short of dayto- day control. It is essential that the UK company is able to demonstrate independent thought and direction with decisions being made by its senior management, always in the best interests of the company and its customers.



Put simply, employ the best that you can. Some overseas investors attempt a very light UK footprint with nearly everything outsourced back to the home country. Some outsourcing is possible, and the UK regulator accepts that India provides many UK firms with essential IT, infrastructure and back office support. But taken to extreme lengths, an overly aggressive outsourcing approach will not be approved by the FCA and PRA.

Your employees are your most important asset, more so, if you are an overseas entity establishing yourself in the UK economy. You need local knowledge and expertise, so it is vital to employ the right people with the necessary knowledge, seniority, skills and competency to support the organization in its goals.

Make it easy for the regulator to approve your senior management. The process for approval will take as long as it takes, so don’t put unnecessary obstacles in the way.


And what of this intractable issue? Brexit shouldn’t be underestimated, but neither should it prevent the establishment of businesses in the UK. The UK is likely to continue to offer a unique environment for many business ventures, particularly in the areas of insurance, trade finance and wholesale banking, Fintech and asset management. It is certainly possible that a Brexit deal will enable UK businesses to retain market access to Europe’s 500 million odd customers but even if such a deal doesn’t transpire, and we have a hard Brexit, there are legal mechanisms that will enable UK firms to continue to offer products and services cross-border Europe. And there is much discussion lately about a post-Brexit UK freeing itself from the shackles of excessively burdensome European regulation, moving its focus away from Europe, and toward more conducive common law countries. When that happens, as we anticipate it will, the links between India and the UK will only become stronger.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.


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