Exploring Pathways to Market into Europe

When establishing or expanding a business in the UK and/or across the EU, there are various paths you can take. The starting point for any firm considering entering a new territory should be taking the time to articulate a strategy, plan carefully, and set clear objectives. The correct partners are key to guiding you through the design and implementation of a solution tailored to your business needs.

Marketing existing products in the UK and/or the EU

There are several ways to market or distribute your existing product in the UK and European markets. The permissible activity for each solution can vary with different compliance considerations and a different cost/benefit analysis. Careful consideration from the outset is necessary to ensure the solution can flex to meet your business needs on day one and thereafter.

Broadly, the options are:

1. Reverse solicitation
   Reverse solicitation is where an investor independently approaches a financial institution to access investment services or products, rather than the institution soliciting the investor. This has typically been perceived as a “light touch” approach with minimal investment required. However, across the UK and EU, regulators take differing views on the facts that can support reverse solicitation activity. A “country by country” approach is required to identify and understand what constitutes reverse solicitation in each territory. Some European regulators have been known to publish the names of managers they consider to have misused reverse solicitation on their websites. Unlawful marketing is a criminal offence in some jurisdictions, and the attendant recission risk from a disgruntled investor means this option is not without risk. The interest of regulators in this area is likely increasing rather than decreasing. Simply having an investor or client sign to confirm that reverse solicitation occurred is not a watertight solution.
2. National Private Placement Regime (NPPR)
   Some firms register their funds pursuant to AIFMD (Alternative Investment Fund Managers Directive) NPPR in as many countries as they intend to actively market on a fly-in/fly-out basis. The NPPR regime allows AIFMs (Alternative Investment Fund Managers) to market AIFs (Alternative Investment Funds) that cannot be offered under the AIFMD domestic marketing or passporting regimes, including non-UK AIFs and AIFs managed by non-UK AIFMs. This removes the need for firms or individuals to be directly regulated when marketing registered funds in the territory, assuming only temporary presence. This approach, while administratively burdensome, can provide a middle ground for firms who would like to actively market to professional investors without the need for a permanent local presence.
3. Establishing a local presence
   Having a local presence maximizes a firm’s potential to attract capital by enabling your team to integrate into the local financial services ecosystem and establish and maintain relations with a local pool of investors. Conducting regulated activity with a local presence invariably requires regulatory permissions, which can be obtained via direct authorization from the local competent authority or via a regulatory hosting solution.

Managing new or existing products from within the UK and/or the EU

Generally speaking, conducting regulated activity from within the UK or EU is a licensable activity for which permission must be obtained via direct authorization from the local competent authority or by partnering with a regulatory hosting provider.

Direct authorization in the UK

The process to become directly authorized by the UK Financial Conduct Authority (FCA) can be involved. The FCA requires that firms be “ready, willing, and organized” to conduct the activities for which a license is sought, meaning a material upfront investment in, among other things, people, capital, systems, and time. When you apply for authorization, the FCA considers your firm and its resources against a set of threshold conditions, including:

1. Location of offices: Is the firm and its senior management/decision-making function based in the UK? Is the “mind and management” of the firm based in the UK?
2. Supervision: Can the firm be effectively supervised by the FCA as part of meeting its own statutory obligations?
3. Resources: Does the firm have the requisite financial and non-financial resources in place to comply with its regulatory obligations?
4. Management: Is the senior management team appropriately skilled and of good repute to discharge its obligations under the regulatory regime?
5. Business model: Is the firm’s business model, structure, and product(s) designed with the customer in mind, and do they risk impacting the FCA’s statutory objectives?

The authorization process, depending on permissions sought, can take approximately six months to complete from the time a completed application is submitted. The time taken is a function of how busy the regulator is, the complexity of the application, how well it is prepared, and the skill and speed demonstrated in responding to follow-up questions.

Regulatory hosting

As an alternative to direct authorization in the UK or the EU, a regulatory hosting solution can facilitate regulated activity. There are a range of options available specific to your business objective, product, activity to be undertaken, and location. Benefits of regulatory hosting solutions include:

1. Accelerated market entry: Onboarding with a regulatory hosting solution is quicker than becoming directly authorized.
2. Ability to focus on your core activity: Whether generating alpha or attracting capital, the regulatory host supplies a fully resourced compliance and control infrastructure.
3. Increased investor confidence and credibility: With robust investor due diligence, you build instant and credible substance.
4. Trialing opportunities: A regulatory hosting solution can provide an opportunity to trial or “sandbox” new products or activities, allowing for testing and refinement ahead of independent authorization.

Partner up 

Whichever route you decide to take to market, it’s key you engage with the right third parties. Engage with a reputable law firm to safeguard against legal risks and apply proper corporate structuring. Additionally, building your firm’s infrastructure is best achieved in collaboration with a partner who has compliance advisory, managed services, and technology expertise.  

Vetting new vendors takes time. Ensure they are well-resourced to help you meet regulatory requirements, achieve best practices, and protect your business from operational, financial, and reputational harm.

Want to learn more?

Tune into our on-demand virtual panel session, “Charting your European Expansion: Exploring Pathways to New Markets.”   

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How We help

Connect with us to speak to our specialists who can guide you on your best route to the UK and European markets. We can help you establish a strong governance, risk, and compliance (GRC) program to ease market entry, attract confident investors, boost resilience, and meet regulatory requirements and expectations.  

Once off the ground, we can further support you with our broad range of advisory, managed services, and RegTech solutions. These are designed to help you grow and protect your business while addressing your compliance, ESG, investment performance, and cyber challenges.  

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Related resources

• Ten Advantages of Pursuing FCA Authorisation 
• Ten Advantages to Turn to Regulatory Hosting in the UK and EU