At a high level, there is a large measure of commonality in the
proposed minimum standards relating to the requirements around:
"fit and proper" directors and senior managers
the capabilities required to provide the service
financial resources and professional indemnity insurance,
governance and compliance culture.
However, in practice, the matters which FMA will have to be
satisfied about in respect of each category of licence will differ
Under the broad heading of "financial resources", for
instance, licensed independent trustees are required only to ensure
that either they or the scheme for which they act have an adequate
level of professional indemnity cover and the ability to meet any
In contrast DIMs licensees (and other licensee types including
crowd funding and peer-to-peer lending providers) must also:
have positive net tangible assets
be able to pay their debts as they fall due
maintain an appropriate level of liquid assets for their
business equal to three months of actual or projected outgoings, on
a rolling basis with allowance for contingencies, and
have adequate and effective systems, policies, procedures and
controls to, for example, constantly monitor their financial
Derivatives issuers are also subject to both capital adequacy
and liquidity requirements.
Chapman Tripp comment
While the different criteria for the various categories of
licences are to be welcomed, there are some potential hooks in this
differential treatment. The practical effect may be to limit the
scope for synergies among the various licence types. People will
not be able to assume that, because they meet the requirements for
one type of licence, they will automatically qualify for another
type of licence.
All intending applicants (other than individual independent
trustees) will be required to provide a comprehensive governance
document and to conduct a thorough audit of (among many other
things) their governance frameworks, IT, outsourcing arrangements,
insurance, human resources strategies, training programmes, record
keeping and compliance processes, and "culture".
Some of the proposed requirements, particularly with regard to
human resources and staffing, will be a considerable challenge for
smaller market participants who might otherwise have been
interested in obtaining a licence.
This is a particular risk in the peer-to-peer lending or crowd
funding space, where the comparatively high level of prescription
proposed - on many levels licensees will be subject to the same
requirements as more "conventional" licensees (DIMS and
MIS managers) – will require real focus from applicants.
Aspiring crowd funding and peer-to-peer lending service
providers can start the application process now, and can be
licensed from 1 April 2014. However, until the
licence criteria are finalised and the regulations behind the FMCA
are implemented, they will be operating with incomplete knowledge
of the regulatory environment in which their business will be
The deadline for derivatives issuers and DIMS providers –
1 December 2014 – looms large, although the
relevant regulations are at an early stage of development.
For MIS managers and independent trustees, the licensing
deadline will be driven by the "effective date" at which
the relevant MIS or restricted scheme intends opting into the FMCA
regime. MISs and restricted schemes have until 1 December
2016 to opt into the FMCA regime. For these categories of
licensees it will still be necessary to begin the licensing
application process in plenty of time.
In all cases we would recommend early engagement because:
our experience with licensing applications is that collating
all of the information and putting in place all of the procedures
and systems to demonstrate compliance with the requirements can
take much longer than parties expect, and
there is the possibility for bottlenecks given the large number
of applications that will need to be processed.
Our thanks to Natan Karon for writing this Brief
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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