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What Is & Why Is A Regulatory Business Plan So Important?

what is why is regulatory business planAll financial services firms bear the same test as just about any other new business: how to persuade investors and lenders that your business has a viable model, can generate the right amount of returns and can pay back its responsibilities. Candidates for FSMA Part IV Permissions face this challenge and one more; they must persuade the regulators of the viability and durability of their business through their planning and preparation.

The RBP is born
An articulate and well-researched Regulatory Business Plan (RBP) is easily the most vital document on the path to acquiring authorisation. As a matter of fact, many who start the process of starting a new financial services firm hardly ever reach formally making an application for the ‘Part 4A Permissions’ called for to start trading; the RBP is simply too weak, incoherently articulated or is unable to demonstrate a strong and viable business model.

Actually for applicants that succeed, the process can be difficult and painful; therefore starting with a strong RBP is vital to keeping momentum.

While there is often a reasonable degree of uncertainty in how the firm will function, the plan must avoid including incorrect or dubious information. The RBP should demonstrate that the targets set by the candidate are realistic, together with financially and operationally controlable.

Although this seems like good sense, reality often demonstrates that it is not that easy in practice.

Some vital questions that the RBP must answer
Why you? The RBP could create an unsatisfactory impression if it does not describe to the regulator its target market and comparative benefits: whether it would offer something new to the market and the elements of its services or products that would make them stand out from their competitors. And reasons why they are best placed to offer and deliver on this proposition?

Them and us: A competitive idea and promising business case is backed up with research and facts. This is a challenging part of the project, the candidate’s RBP must exhibit that there is a market for their products and services, and also understand the competition and their expected share in the marketplace. The RBP must also show its comprehension of the dynamics of the marketplace and how the proposed new firm will meet customer needs.

Known unknowns: Here, the concern is how candidates will approach the problem of partial or unavailable information. Some RBPs are extremely ambitious about their target audience and customers; some others are hopeful as to the costs of running a firm, especially operational risks and mitigation costs and this may lead to expected costs occurring in a superficial manner in the RBP. All projections and approximations must be backed by thorough and trustworthy market research or precise business information.

From a regulator’s perspective, mentioning all the possible expenses and prospective financial needs in the RBP provides a valuable starting point into assessing business model viability. It also proves that the applicant has a sound grasp of its figures and market. A start-up may not have all the information to-hand on day-one when it meets the regulator, but it should have sensible estimates and a plan of the timeline and actions to acquire the information and must include it into the plan before submitting it.

New entrants will have to describe in their plan how they will adhere to complex prudential and conduct regulations. This is not easy,; even the UK’s most established institutions have got themselves into significant problems caused by regulatory breaches.
Many of these breaches could have been avoided if their risk and compliance measures had been proactive instead of reactive and had sufficient resources to do their job initially. Although investment in Compliance is seen as a sunk cost, the inverse is hugely costly and damaging not only financially but also from a reputational viewpoint.

Balancing optimism with pragmatism: without optimism and a belief in the business plan, the process would not even have started, but the RBP needs a heavy dose of pragmatism. The regulator sees a great deal of inconclusive, ambitious, cost-heavy proposals that only could generate income if unrealistic growth plans paid off. Unrealistic plans protrude like a sore thumb.

Being clear: Provide only relevant data; an overly long submission filled with generic or irrelevant data will not fulfill the RBP’s purpose to the regulator. In fact, extra detail can disorientate and make the reviewer’s job troublesome. The RBP should only present relevant information that answers the question why the individual candidate ought to be authorised.

So how can candidates maximise their chances to submit a persuasive RBP?

  • Understand the areas, topics and granularity of information that the regulator expects.
  • Ensure that the RBP meets the regulatory requirements of the FCA.
  • Be clear that several iterations of the RBP may be required to be submitted before the regulators direct you to move forward with other submissions
  • Know the sources and processes to acquire the relevant information and data to estimate and demonstrate their potential position in the market.
  • The drafting of the RBP should be conducted with clarity and precision, answering directly and precisely possible questions from the regulator.
  • See to it that the RBP is effectively linked to all other documents (the financial plan, the ICAAP, ILAAP, risk management framework, corporate governance documents, monitoring plan etc.).
  • Listen carefully to the regulator. Evaluations from the regulator will be some of the most valuable advice in helping to tweak an RBP.

Compliance Consultant can arrange for a Business Plan to be created for you, but we will need your data, your Market Research, Your perceived risks and your operational plan for us to help identify the regulatory elements that will need to be added and highlighted.

Call us on 0207 097 1434 or email

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