- with readers working within the Securities & Investment industries
As part of the government's Regulation Action Plan published in March 2025, the government committed to working with the FCA to establish a 'provisional licence' authorisation regime.
The purpose of the regime is to reduce the barriers that firms face when seeking authorisation and enable the FCA to grant time-limited permissions so that firms can get 'up and running' in a controlled environment with strong regulatory oversight, whilst working towards full authorisation.
HM Treasury has now issued a policy update on the proposed regime outlining how the regime will operate.
1. What is the scope of the regime?
It is intended that the regime will apply to firms not currently licensed under the Financial Services and Markets Act 2000. HM Treasury confirms that the regime will not be available for:
- authorised firms seeking a variation of permission;
- firms seeking permissions for activities that are being brought into regulation for the first time; and
- firms that will be subject to dual regulation by the FCA and PRA.
In relation to specific products, HM Treasury commented that products or services delivered over a long or deferred timeframe (where harms to customers may not emerge until after the expiry of the provisional licence period) are unlikely to be suitable for the regime. An example of this could be pensions advice.
HM Treasury confirmed that the FCA will be responsible for determining eligibility for the regime within the above parameters. They considered that eligibility could be adjusted over time and that the FCA may decide to initially focus on specific areas or products to support a successful launch.
2. What are the minimum standards firms will have to meet to apply for a provisional licence?
Firms will need to demonstrate that they can meet the threshold conditions, for the period of the provisional licence. This will include having appropriate financial and non-financial resources for the period of the provisional licence only. The intention is that this will allow firms the time and flexibility to build up their resources further over the provisional licence period (e.g. build and implement systems, recruit senior management functions and key staff, secure appropriate funding, put outsourcing arrangements in place, finalise policies and procedures and test operations). HM Treasury has confirmed that the FCA's assessment of applications for provisional licences against the threshold conditions will be proportionate, i.e., its judgements will be tailored to both the firm's stage of development (for example, its capital reserves and risk, compliance and audit arrangements, and the possibly immature or evolving nature of its business model) and the fact that the firm has applied for a time-limited authorisation.
The FCA will however expect firms to be able to demonstrate that they will be able to wind down in an orderly manner and minimise the risk of disruption or consumer detriment at the end of the provisional licence period, where that is necessary.
3. How long can firms use the provisional licence?
The regime will be available for a fixed duration of up to 18 months.
4. What restrictions will firms be subject to whilst in the provisional regime?
The FCA will impose restrictions on the amount and type of business a firm can undertake during this provisional licence period, for example, firms may be subject to a volume or value limit on the business they can do using the provisional licence and they may be restricted from conducting long-term regulated business that would last beyond the end of the licence period.
5. What obligations will firms be subject to whilst holding a provisional licence?
Firms will be required to comply with relevant rules and continue to meet the threshold conditions during the provisional licence period. At this stage it is not clear if relevant rules means those rules applicable to fully authorised firms carrying out equivalent activities or if a lighter touch framework (e.g., reduced capital requirements or consumer disclosures) will be applicable.
6. How will firms be supervised under the provisional licensing regime?
The FCA will have its full suite of supervisory and enforcement powers available to it under this regime.
Firms with a provisional licence should expect greater supervision than fully authorised firms including enhanced monitoring and closer oversight when compared to a fully authorised firm of an otherwise similar nature.
7. Will there be an alternative route for authorisation for firms within the provisional licensing regime?
Yes. The FCA will develop a bespoke application and assessment process for firms with a provisional licence, which will take into account the information provided during the provisional licence application and will involve ongoing dialogue with the firm and the FCA providing detailed feedback. This has the potential to turn into an attractive route for firms ultimately seeking authorisation, given the 9 to 12 month period typically needed to complete a full FCA application process.
8. What happens at the end of the provisional licence period where firms have not achieved full authorisation?
Firms which have not achieved full authorisation by the end of the provisional licence period will have their permissions expire and will have to cease undertaking regulated activities. These firms will be required to wind down any live products and to work with the FCA to do this.
HM Treasury has confirmed however that an extension will be available in certain circumstances. This includes where a firm has applied for full authorisation in good time before the end of its provisional licence period and complied with requests from the FCA but has not received a decision from the FCA.
9. When will the regime be implemented?
The proposals are very early stage and it is currently unclear when the regime will become available. No timings have been provided by either HM Treasury, which need to propose draft legislation, or the FCA, which will need to engage with industry on the design of the regime and then consult as necessary. Notably, the FCA did not include in its recently published pipeline a consultation on this regime. It therefore seems likely that new market entrants should, for the time being, expect to prepare for the full authorisation process rather look to the provisional licensing regime as an interim solution.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
