Navigating Corporate Finance Firms’ regulatory compliance with Delio

Navigating Corporate Finance Firms’ regulatory compliance with Delio

16th October 2023

The world of corporate finance is ever evolving, so it’s crucial for firms to adapt to regulatory changes and market dynamics. The Financial Conduct Authority (FCA) has noticed this and at the end of September sent a “Dear CEO” letter to registered Corporate Finance Firms (CFFs) stating what is expected of them. 

In this blog, we explore the evolving landscape of CFFs, the regulatory policies highlighted by the FCA in their recent letter, and how digital platforms like Delio can help navigate this and reduce associated risks.

A changing landscape

CFFs often raise funds for unlisted companies, offering investors an opportunity to be part of the growth story of emerging businesses. This exposes consumers to high-risk investments, which may not always align with their financial objectives and risk tolerance. To address this, the FCA has been diligently supervising CFFs to ensure their business models are sound and that they take a responsible approach to market abuse and the suitability of their products for consumers.

However, the landscape for CFFs has been challenging due to lower Initial Public Offering (IPO) and Mergers & Acquisitions (M&A) activity. In response to this downturn, many firms have undertaken cost rationalisation and consolidation. Although the sector has remained resilient during this period, upholding market integrity, some CFFs may be tempted to take on higher-risk business to compensate for the reduced transaction activity. 

There is also another notable shift, where CFFs are moving away from their traditional focus on institutional investors to individual investors. This brings more regulatory considerations, and as part of their letter, the FCA reiterated that they expect these firms to have robust controls in place to manage these higher risks effectively.

Regulatory changes: Protecting consumers

The FCA recently introduced significant regulatory changes to protect consumers. Stronger financial promotion rules for high-risk investments were implemented in December 2022 and February 2023. Furthermore, firms now need to seek FCA authorisation to approve financial promotions, ensuring greater scrutiny and consumer protection.

The introduction of the Consumer Duty on 31 July 2023 requires firms to prioritise consumers’ needs. It applies to firms conducting retail market business and those involved in client categorisation. As part of this, CFFs must not encourage clients to seek professional client classification solely to circumvent protections afforded to retail clients. Correct client categorisation and client protection are essential aspects of this.

FCA’s supervisory priorities for CFFs

In their letter, the FCA set clear supervisory priorities for CFFs:

Client categorisation: Firms must adhere to client categorisation requirements. The FCA will conduct targeted reviews to ensure that these processes are effective and follow the necessary quantitative and qualitative tests.

The Consumer Duty: The duty applies to firms that conduct retail market business, affecting those that communicate or approve financial promotions related to retail customers.

Dealing with Problem Firms: CFFs must use their regulatory permissions for legitimate business purposes and accurately reflect them on the Financial Services Register to avoid misleading consumers.

Market abuse: CFFs must take a bespoke approach to market abuse controls that align with their individual business models. The FCA expects CFFs to cultivate robust prevention cultures and establish systems and controls that enable them to fulfil their obligations under the UK Market Abuse Regulation (UK MAR).

Navigating regulatory pitfalls with Delio

As the FCA continues to introduce stringent regulations and supervisory priorities, it becomes evident that CFFs need to embrace digital solutions to navigate the evolving landscape effectively. 

Delio, as a regulated cover service provider and a robust private market platform, offers a range of solutions to help CFFs manage their private market investments more securely and reduce the risks associated with regulatory non-compliance through:

Client classification

Delio simplifies the process of investor classification, ensuring that firms comply with client categorisation requirements effectively.

Within a digitised onboarding process, Delio Core incorporates appropriateness tests and/or initial suitability assessments to determine an investor’s understanding. Additionally, the platform aids in the recertification process, guaranteeing the accuracy and currency of investor information.

Digital promotion tracking

With Delio Core, CFFs can digitally communicate promotions, allowing for precise tracking and compliance throughout the process.

Custom terms and conditions, appropriate risk warnings, and comprehensive audit logs provide you with the necessary documents and information to be regulatory compliant 

Embedded compliance in workflows

Integrate compliance steps into automated workflows, streamlining the entire process and minimising the risk of regulatory violations. Include documentation release steps to control the flow of information provided to investors.

Digitised workflows not only minimise the chance of errors but also allow for better tracking and record-keeping. Audit logs can provide a comprehensive history of the workflow, offering transparency and accountability.

Regulatory cover service

Delio’s regulatory cover provides assistance, via Delio’s regulated permissions, to perform the regulated activity of “arranging” helping firms ensure they are compliant with the FCA’ rules.

CFFs can benefit from the expertise and guidance offered by the service, simplifying what can otherwise be an arduous journey.

Navigating the future with confidence

In an ever-changing regulatory environment, CFFs must stay vigilant and adapt to the evolving landscape. The FCA’s regulatory changes and supervisory priorities are designed to protect consumers and uphold market integrity. 

Utilising digital platforms like Delio can significantly reduce the risks associated with regulatory non-compliance, enabling CFFs to navigate the future with confidence. By embracing technology and maintaining a commitment to regulatory compliance, CFFs can continue to play a vital role in supporting the growth of unlisted companies while safeguarding the interests of investors.

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