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Shelter from the storm

Outsourcing is widely used by companies the world over. Either they do not have a particular capability in-house or they do not need it on a full-time basis – employing a third-party can minimise costs.

A regulatory incubator, or a regulatory umbrella, supports start-up businesses through the initial regulatory phase until they can be directly regulated in their own right. The process is not dissimilar to that of business incubators. The primary focus for a UK regulatory is the requirements of the Financial Conduct Authority (FCA). No person can conduct regulated activity in the UK without being authorised or classed as an exempt person. A business can be exempted by becoming an appointed representative of an authorised firm (the principal). 

Effectively, a client becomes an appointed representative of the incubator, which in turn accepts responsibility for all of its regulated activities. Regulatory incubation is not new. It is 10 years since Sturgeon Ventures was founded to apply the principle to start-up fund managers – regulatory cover would be provided until they could seek authorisation in their own right. 

Over the years, the business model has been more widely adopted: Midmar Capital, Gallium Fund Solutions, Mirabella Financial Services and Linear Investments are some of the other practitioners in the UK – known as FCA Umbrella or Regulatory Hosting Platforms. The range of services has expanded as has the types of incubator.

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