Online Platforms: "Walking" the line between legal and financial services compliance (Part 1 of 5)

05 August 2019

The proliferation of online platforms in financial services has created a new mechanism for distributing financial services.  This article sets out the legal and regulatory challenges faced by an online financial services platform. 

What is an online platform in financial services?

At a high level, an online platform is a marketplace for goods or services accessible using a website.  There are a number of different types of online platforms in financial services, which include:

  • Investment marketplace platforms (retail and professional);
  • Financial advisor platforms;
  • so called “Robo-advisor” platforms;
  • Crowdfunding platforms;
  • Online discretionary investment platforms (“ODIMs”); and
  • Futures, Options and Contracts for difference trading platforms.

How are platforms regulated in the UK?

The Financial Conduct Authority (“FCA”) takes a technology neutral approach to financial services regulation.  As such, any activity regulated by the FCA and carried on by the operator of an online platform will fall within its regulatory perimeter, irrespective of the use of technology.

Operators of FCA regulated online platforms will also need to consider their regulatory compliance obligations. 

In this article we consider some questions that operators of online platforms should ask when establishing and operating a regulated online platform.

Questions to consider when setting up an online platform

When setting up an online platform in financial services, a firm may wish to consider the following points which will impact on (1) whether the platform is regulated and (2) the regulatory compliance obligations that will apply.

  • What will be the nature of activity carried out by the online platform?
  • Will the activities be regulated and, if so, what permissions are needed by the platform?
  • Would it be possible to carry out these activities using an “appointed representative”?
  • Will the operator be facilitating financial services or carrying out the underlying financial services activity?
  • Will the platform be providing “advice” on investments to customers, or acting like a marketplace, or both?
  • What type of clients will use the platform? Will a regulatory client categorisation system be required?
  • Which type of clients will be targeted?
  • What regulatory systems and controls are in place?

As published in Butterworths Journal of International Banking & Financial Law, June 2019.

Part 1 │ Part 2 │ Part 3 │ Part 4 │ Part 5

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  • 9 December 2019

    The changes set out in the appendices of PRA PS20/19, implementing changes to the prescribed responsibility for recovery and resolution under SM&CR,  will come into force. 

  • 9 December 2019

    PRA Consultation CP20/19 closes. 

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    FCA CP19/29  on recovering the costs of supervising cryptoasset businesses under the Money Laundering Regulations.  For the registration fee proposal, the consultation closes on 11 November 2019. The FCA intends to publish feedback and confirm the registration fee in its December 2019 Handbook Notice.

    For the periodic fee proposal, the consultation closes on 10 December 2019. The FCA intends to publish feedback in its April 2020 annual fee-rates consultation paper.