Let’s talk about the relatively new phenomena of licensing pre-applications and how to make them go quickly. ⏩

License pre-application phases are introduced by many (but not all) regulators as a formal step before you can apply for any license or authorization.

Regulators don’t want companies to just send them an (unsolicited) license application file, which will likely be incomplete, confusing, poorly prepared, and hard to process if you have not been properly instructed and prepared accordingly.

Did you know that over 90% of the projects who reach out to regulators with licensing requests actually never apply for the license or churn in the middle of the process? 🤯

So, what are the main reasons and objectives of the pre-application phase?

• It is de-facto a vetting experience to ensure that the project does not have any major blocking points and won’t be wasting their time and reviewers’ time if and when they submit the full package.
• Many regulators have internal deadlines requiring them to make a decision within (for example) 12 months from the initial formal submission of the application, therefore, if at this point they cannot say “yes”, they would have to say “no”. In a way, regulators are trying to create flexibility for themselves with respect to how long things may take because pre-applications typically don’t have strict formal deadlines.
• During the pre-application phase, the project team will get clarity around whether they are applying for the right license, and (normally) very clear feedback on how many people and board members they will need to hire locally versus which activities can be outsourced and performed by other group entities or 3rd parties.

What are the typical documentation requirements and core focus of the license pre-application phase?

• Business model and flow of funds to confirm that you are indeed applying for the right license. Be clear about the services you really want to provide and don’t incorporate the dream services you may be able to offer sometime in the distant future.
• Team: organizational structure, board composition, hiring plans for “Day One” and first 2-3 years. Basic “fit and proper” assessment of the core team. Expect this to be 50% of your discussions at this stage.
• Sources of funding for your future operations and the financial viability of the project. Make sure you can demonstrate how the project will be funded and when it will become profitable.
• Basic overview of your AML approach and business risk assessment. Nothing fancy here – just basic AML policy and Enterprise-Wide Risk Assessment.

What is less important and not critical at this point?

• Tools you use and IT setup
• Detailed policies
• Marketing documents or how much PR you have recently generated
• Whether you have a legal entity already incorporated

How long does it take and would be a successful outcome of the pre-application?

It typically takes 2-4 months and the desired outcome you want would be a letter or an email from the regulator, stating that you are welcome to formally apply for the XYZ authorization.

Have a wonderful day! 🌞