Meeting the minimum standards, or “Threshold Conditions” required to be a UK regulated firm both at authorisation stage and on an ongoing basis thereafter, can be challenging for some start-up and early-stage firms. While it is crucial that the high standards of the UK regulatory regime are maintained, the requirements can mean that some firms are put off applying for authorisation, or are delayed in doing so as they try to raise adequate funding, or recruit the right people with the skills and experience to put the required frameworks and structures in place.
In March 2025, HM Treasury published the Regulation Action Plan explaining how it plans to re-energise regulation so that it protects consumers and competition while at the same time supporting investment and innovation. Part of this plan includes the government’s commitment to working with the FCA to establish a “Provisional Licence Regime”.
The aim of the regime is to reduce the barriers which firms face in becoming authorised by enabling the FCA to grant time-limited permissions so that they can build their business in a controlled environment with strong regulatory oversight while they work towards full authorisation.
Scope and Eligibility for the Provisional Licence Regime:
The regime is intended for firms which are:
- not already authorised by the FCA and are looking to be authorised under Part 4A of the Financial Services and Markets Act 2000 (“FSMA”) for activities which are already within the FCA’s bailiwick.
It is not intended for firms which are:
- intending to apply for a variation of permission
- seeking permission for activities that are being brought into regulation for the first time
- subject to dual authorisation by the PRA and the FCA (the optional mobilisation route is available to these firms).
It is also not suitable for products or services delivered over a long period of time where harms to customers may not become evident until after the expiry of the provisional licence period.
The FCA will be responsible for determining eligibility for the regime and there are provisions for this to be adjusted over time where for example, the FCA decides to focus on particular sectors or products.
Application Process Under the Provisional Licence Regime:
The FCA will establish a new application process with modified and proportionate expectations for applicant firms. The FCA’s assessment will focus on whether the Threshold Conditions can be met for the period of the provisional licence and will not expect firms to be at the same stage of readiness and organisation as firms who apply for full authorisation.
Conditions for Firms Using the Provisional Licence Regime:
Firms who apply for a provisional licence will need to demonstrate that they can meet the Threshold Conditions for the period of the provisional licence including having appropriate financial and non-financial resources during that time. This will allow firms the time and flexibility to build and implement systems, recruit senior management function holders and key staff, secure appropriate funding, finalise policies and procedures, test that operations are working well etc. so that when they apply for full authorisation, they can demonstrate that they are able to meet the required standards on an ongoing basis.
The FCA also expects that firms will be able to wind-down in an orderly manner at the end of the provisional licence period if necessary.
Duration of the Provisional Licence Regime:
The regime will apply for a fixed duration of up to 18 months, although this may be extended in certain circumstances.
FCA Requirements During the Provisional Licence Period:
The FCA will impose restrictions on the amount and type of business that a firm can undertake during this time such as a volume or value limit and they may not be able to conduct long-term business which would extend beyond the end of the licence period. As previously mentioned, firms will need to demonstrate that they can meet the Threshold Conditions during the provisional licence period.
The FCA will have full supervisory and enforcement tools available to them and will maintain engagement with firms during the provisional licence period. This will include close monitoring and enhanced oversight when compared to similar firms which are fully authorised.
The intention of the regime is that firms will reach full authorisation during or at the end of the provisional licence period.
Next Steps for the Provisional Licence Regime:
The FCA will develop a bespoke application and assessment process for firms with a provisional licence and is keen to obtain feedback from industry on the design of the process to make sure that it works for firms, while meeting the high standards of full authorisation.
Where firms do not achieve full authorisation by the end of the provisional licence period, their permissions will expire and they will have to cease undertaking regulated activities. They will also be required to wind-down their business and any “live” products.
This initiative requires primary legislation and this will be taken forward by the government when parliamentary time allows.
Please contact us if you have any questions relating to the regime, or are thinking about applying to the FCA for authorisation.
