Times are changing, technology keeps on growing, and regulators are getting stricter. Launching a financial services business in the UK presents a host of regulatory challenges, particularly for smaller firms and non-UK entities. Gaining direct authorisation from the Financial Conduct Authority (FCA) can be a time-consuming, resource-heavy process. The application often takes months, demands detailed documentation, and requires firms to establish a comprehensive compliance infrastructure.
However, regulatory hosting, the model by which firms become Appointed Representatives (ARs) of authorised principal firms, offers a compelling alternative. For many, it enables faster market entry, lower upfront costs, and access to experienced compliance support. With post-Brexit restrictions limiting access to the UK market for many EU-based firms, regulatory hosting has become not just an option, but often a necessity.
This article explores both pathways, direct FCA authorisation and regulatory hosting, unpacking their relative advantages, trade-offs, and key compliance considerations for firms looking to operate in the UK financial services landscape.
FCA Authorisation vs Regulatory Hosting: The Basics
Securing direct FCA authorisation is a thorough process. Applicants must demonstrate that they meet the FCA’s Threshold Conditions, which include maintaining adequate financial resources, employing fit and proper personnel, and implementing suitable systems and controls1. The process can take anywhere from three to twelve months, depending on the complexity of the business model and the readiness of the firm2.
- ‘MiFID Adviser/Arranger: 2–3 months (if straightforward), up to 6 months if not
- MiFID Investment Manager: 6 months
- AIFM (Full-Scope): 6–9 months’
On 15 July 2025, the FCA announced new measures aimed at speeding up the process. The regulator stated: ‘Our aim is to deliver a quicker, more proportionate and predictable approach for firms, while maintaining high standards of entry into regulated financial services.’But even then, Sheree Howard, executive director of authorisations at the FCA, mentioned that ‘…they will maintain a robust authorisation process that helps safeguard the integrity of the UK’s competitive financial services market while protecting consumers.’3
This raises a key question: just how much faster will the process really become? While the intent is clear, many in the industry remain sceptical, questioning whether the reforms will meaningfully reduce wait times, or simply improve administrative clarity without cutting months off the process.
A Faster Alternative: Regulatory Hosting. It allows a firm to operate as an AR under an FCA-authorised principal. Under this model, the principal holds the permissions and regulatory responsibility, while the AR operates under a binding agreement. This significantly accelerates time to market, and firms can be operational within weeks.4
Importantly, ARs are typically restricted to carrying out non-discretionary activities such as advising and arranging and cannot perform discretionary investment management or custody without direct authorisation.
Why Firms Are Turning to Regulatory Hosting
For startups and international firms, the appeal of regulatory hosting lies primarily in its speed, efficiency, and access to compliance infrastructure. Instead of building an in-house compliance function, ARs rely on the principal firm’s established systems and personnel, often resulting in significant cost savings.
According to Laven Partners, ARs benefit from reduced capital requirements, as they are not subject to the same prudential rules as directly authorised firms. This allows them to preserve cash flow and allocate capital more effectively in early-stage operations.5
Additionally, by plugging into an established compliance framework, ARs gain immediate access to processes for regulatory reporting, client onboarding (AML/KYC), financial promotions review, and training. This is particularly beneficial for firms unfamiliar with UK regulatory expectations or those entering from jurisdictions with different compliance cultures.
Post-Brexit Market Access for Non-UK Firms
Since the UK’s departure from the EU, firms that previously relied on passporting must now obtain authorisation or find alternative routes to operate in the UK. Regulatory hosting has emerged as a practical solution for many such firms.
EU-based firms, particularly in asset management and financial advisory, have used the AR model to maintain access to UK clients without establishing a full presence.
This pathway not only facilitates market continuity post-Brexit but does so in a way that avoids large compliance investments upfront. Firms can test the market, build client relationships, and assess long-term viability before committing to full FCA authorisation.
The consumer impact is also significant. Regulatory hosting has supported greater diversity in the UK financial services landscape, introducing more providers and enhancing competition, provided that consumer protections remain intact.
It’s not all sunshine and rainbows: Operational Trade-offs and Growing Regulatory Scrutiny
While the advantages of hosting are considerable, firms must also weigh several operational limitations and regulatory risks.
One of the biggest trade-offs is dependency. ARs operate entirely under the permissions of the principal. If the AR’s business model evolves or expands beyond the host’s permissions, the firm may need to pursue direct authorisation, a process it originally sought to avoid.
The FCA has also become increasingly attentive to the risks posed by the AR model. Following a series of supervisory failings, it conducted a multi-firm review and introduced strengthened rules in 2022, including requirements for enhanced oversight, annual reporting of revenues and complaints, and more robust contractual governance between principals and ARs6. And later in 2024, it conducted an assessment on how those new rules were being implemented. The FCA’s in-depth review found that while 4 in 5 principals had completed self-assessments or annual reviews, only around half were of good quality. Some had not properly documented their assessments or relied on overly simplistic templates that failed to meet the standards set out in SUP 12.6A.7
This heightened scrutiny means both ARs and principal firms need to demonstrate that the model is being used appropriately, not as a regulatory shortcut, but as a structured and supervised business arrangement.
RegTech: Enhancing Oversight and Efficiency
As the compliance landscape becomes more complex, Regulatory Technology (RegTech) is playing an increasingly central role. These tools automate manual compliance processes, reduce the risk of error, and improve the quality of reporting, transforming how principal firms oversee their ARs.
At Leo RegTech, we support principal firms by streamlining AR onboarding, real-time risk monitoring, and centralised compliance reporting. Our platform provides the principal firms with an overview of all AR’s tasks and register entries in one place, with visibility into key metrics, ensuring that regulatory requirements are consistently met.
The system enables firms to:
- Automate training and regulatory reminders across all users
- Evaluate internal controls and flag areas for improvement
- Generate remedial recommendations, assign tasks, and track them to completion
- Maintain a formal audit trail to evidence compliance with minimal manual effort
What sets Leo apart is Eva, our compliance AI assistant. Trained specifically on UK financial regulations, fund operations, and the Leo platform, Eva offers accurate, contextualised answers that always align with the FCA, AMF and US regulations. Whether you’re unsure about your obligations under SM&CR, managing client disclosures, or preparing for a thematic review, Eva provides the clarity and confidence needed to stay compliant.
As well, the FCA’s 5-year Business Plan and its Innovation Hub continue to actively promote RegTech adoption. As regulatory expectations evolve, tools like Leo are helping firms not only meet today’s standards but stay ahead of tomorrow.
With the global RegTech market projected to reach $87 billion by 20288, the UK’s early leadership in this space could be transformative, particularly for hosted firms looking to manage complexity at scale.
Making the Right Choice: Authorisation or Hosting?
Choosing between FCA authorisation and regulatory hosting depends on a range of factors: business model, size, growth strategy, and risk appetite.
Firms that value autonomy and long-term independence may choose direct authorisation, despite the time and cost involved. This route is often better suited to established firms with dedicated compliance resources and a long-term UK presence in mind.
Others, particularly newer firms or international entrants, may see hosting as a stepping stone. It allows them to validate their model, build revenue, and engage with clients while gradually preparing for their own licence application.
Some firms choose to remain hosted long-term, especially where the principal firm provides a high level of service and governance. The fixed-fee model often offers budget predictability, with no link to assets under management or performance, reducing conflicts and supporting good governance.9
Key Takeaways for Compliance Officers
For compliance officers, regulatory hosting is not a shortcut; it’s a strategic regulatory structure that demands diligence and oversight.
First, due diligence on the principal is critical. Officers should confirm that the host has the necessary FCA permissions, a strong compliance track record, and systems capable of supporting the proposed activities.
Second, the relationship requires ongoing engagement. ARs must maintain open lines of communication with the host, stay up to date on regulatory changes, and ensure that their activities remain within agreed boundaries.
Lastly, with the FCA committed to refining the AR regime, compliance officers should keep a close watch on forthcoming reforms. The 2025 Mansion House speech by Chancellor Rachel Reeves hinted at broader regulatory transformation to come, potentially affecting both ARs and their hosts.10
In conclusion…
As the UK financial services environment evolves, firms face a choice: navigate the slower, resource-heavy path to direct FCA authorisation, or adopt the more agile approach offered by regulatory hosting.
For many, especially smaller or non-UK firms, regulatory hosting presents a compelling balance of speed, cost control, and access to compliance expertise. When paired with modern RegTech tools and a strong principal partner, it enables firms to operate confidently and compliantly in one of the world’s most demanding regulatory jurisdictions.
Whether used as a launchpad for eventual authorisation or a long-term operational model, regulatory hosting is no longer a niche strategy; it’s a mainstream solution for navigating UK financial compliance.
To learn more about Leo and how we can help, contact one of our specialists.
References
- https://rqcgroup.com/what-you-need-to-know-about-fca-authorisation-in-2025/ ↩︎
- https://rqcgroup.com/what-you-need-to-know-about-fca-authorisation-in-2025/ ↩︎
- https://www.fca.org.uk/news/news-stories/fca-sets-faster-targets-authorisations ↩︎
- https://lavenpartners.com/regulatory-hosting/ ↩︎
- https://lavenpartners.com/regulatory-hosting/ ↩︎
- https://www.fca.org.uk/publications/policy-statements/ps22-11-improving-appointed-representatives-regime ↩︎
- https://www.fca.org.uk/publications/good-and-poor-practice/principal-firms-embedding-new-rules-effective-appointed-representative-oversight ↩︎
- https://www.innovatefinance.com/policy-blogs/the-regtech-test-how-can-regulators-encourage-the-adoption-and-growth-of-regtech-in-financial-services-compliance/ ↩︎
- https://www.osborneclarke.com/insights/uk-regulatory-hosts-fund-structures-offer-benefits-and-raise-fca-concerns ↩︎
- https://www.gov.uk/government/speeches/rachel-reeves-mansion-house-2025-speech ↩︎
