Umbrella services: Q&A with Lawson Conner

With new regulations increasingly coming into play – notably the AIFMD – the UKCRA has been set up by Lawson Connor, Linear Investment, Capital Systematics and Hutchinson Lilly Investments. The four Financial Conduct Authority (FCA) regulatory incubators and umbrella providers joined forces with the shared goal of enhancing professional standards and minimizing risks.

FCA umbrella firms allow clients to carryout regulated activities within the financial services industry without the burden of a direct FCA authorisation.

How did the UKCRA come into existence and what is its main purpose?

The association was set up by four FCA umbrella and regulation services companies in the UK. By working closely together we can provide better services in a heavily regulated industry. We believe the industry needed a professional forum where members implement and further develop compliance standards.

Furthermore, we feel we can reduce overall risk in the financial industry because our services enable more managers to be compliant. We aim to be trusted partners for professionals and organisations that are setting up new financial services businesses, such as private equity firms and other alternative investment funds.

What is the main advantage of using an FCA umbrella rather than applying directly to the FCA?

For new managers entering private equity there are two options when it comes to compliance. First, they can apply directly to the FCA for their own licence, which can be expensive and timely. This process can take up to nine months, which takes time and management focus away from the core business. And even then, there is no guarantee the licence will even be granted.

Second, the new manager can opt to use an umbrella provider, thereby side-stepping high costs for an individual licence and also saving a great deal of time. An umbrella licence takes around two to three weeks to set up.

The key advantage is allowing managers to focus on their core business rather than spending time on administration tasks, dealing with documentation, reporting, monitoring, capital adequacy rules and other time-consuming activities unrelated to capital raising and investing.

For new managers without huge amounts of cash yet, the UKCRA is a good solution for getting a foot in the door to allow them to get started on marketing and raising funds.

Everyone benefits from our combined expertise. For a new private equity manager the start-up process can be frustrating as multiple steps have to be made simultaneously. Collectively, we can advise on issues such as different fund structures or selecting the right law firm. We can even recommend family offices and seed investors for those raising funds.

We work with people that are well-versed in investing and managing a portfolio but haven't had to deal with structuring, legal issues or compliance. We can guide managers through all of these processes and recommend the best people to work with.

Once the manager is more established, they can opt to turn off the umbrella if it is no longer needed and apply for direct authorisation. Since all systems and controls are in place already, a direct authorisation is easier. If the strategy hasn't worked and the managers have been unsuccessful in raising a fund, then at least they haven't spent huge amounts of time and money in obtaining their own FCA licence. We provide a good level of flexibility.

Will this kind of service be beneficial to the FCA?

The coming together of compliance experts, who have all worked in various parts of the industry, to help and guide new entrants is surely a good thing.

For the FCA, when processing an application for a manager that has been using the umbrella, the regulator knows the manager has tested compliance procedures already in place, and has been acting in a compliant manner. Therefore, we think applications from those who have worked with the umbrella service can be processed more quickly as they require fewer questions from the regulator.

The umbrella almost acts as L-plates when learning to drive. The manager is driving the car, but they have an expert in the passenger seat to guide them, make sure they are driving safely and following the Highway Code.

How have umbrella services developed over the years?

Umbrella services used to be less sophisticated. Older umbrellas were granted almost on the basis of a handshake agreement. However, with entrants increasingly coming in from banks and investment managers, the industry has evolved over the last two years and is now much more professional with standardised processes, better technology, improved documentation and increased experience. Through this evolution, umbrella services have become a valid option for new entrants into the financial services market.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Regulation
• United Kingdom
• AIFM Directive
• Top story