His Majesty’s Treasury (HMT) has published a Policy Update following its commitment in the Regulatory Action Plan of March 2025 to introduce a “provisional licence regime”, aimed at reducing regulatory burdens for firms seeking authorisation by the Financial Conduct Authority (FCA). The March announcement did not attract significant attention, so it remains to be seen whether this latest update will generate genuine interest or simply raise further questions.
Aims of the Proposed Regime
At its core, the objective is commendable: linked to the Government’s growth agenda, the regime would allow the FCA to grant innovative financial services start-ups time-limited permissions, even if they do not fully meet all the Threshold Conditions. This approach is expected to be more streamlined than the current Authorisations regime and consequently, quicker in enabling firms to undertake regulated activities.
Current Authorisation Requirements Under FSMA
It’s worth pausing for a moment to consider the current requirements. A firm applying for authorisation under the Financial Services and Markets Act 2000 (FSMA) must demonstrate that it meets the Threshold Conditions at the point of authorisation and is expected to do so on an ongoing basis thereafter. These conditions include appropriate resources (both financial and non-financial), the location of offices and the fitness and propriety of those involved. The onus is firmly on the applicant firm to satisfy the FCA that its arrangements are appropriate, adequate and suitable. This can often become subjective, with the regulator and the firm having differing views on what ‘good’ looks like.
Increased Flexibility and Potential Benefits
The proposed regime would permit the FCA to ‘flex’ these entry conditions, thereby increasing opportunities for firms to become provisionally authorised and operational. The FCA’s current insistence that firms be ‘ready, willing and organised’ at the point of application has proved particularly challenging, especially in the payments sector, where approval rates remain around 20%.
Moreover, the application packs are extensive and time-consuming for firms to prepare and for the FCA to assess. Subsequent rounds of questions, clarifications and interviews with key personnel often result in an application taking several months to determine. Even where the outcome is positive, the process represents a significant delay for start-ups, which may be burning through capital while awaiting approval.
Is the Regime Really New?
A provisional licence approach could offer a more efficient route to market. However, one might ask: doesn’t this sound rather familiar?
Indeed, Project Innovate and the Regulatory Sandbox were developed with similar aims, including a more flexible interpretation of the Threshold Conditions while the firm operated within a controlled ‘safe space’ to test a ‘proof of concept’ (a phrase used by HMT in its Policy Update). Additionally, the FCA already has the ability to apply Limitations or Requirements to a firm’s permissions to restrict its business scope or scale. This is complemented by the FCA’s Early and High Growth Oversight function, which closely supervises certain firms to support safe growth in a controlled environment.
Sector Scope and the Payments Question
Although the regime appears targeted at innovative firms, it is broadly sector-agnostic, with the exception of banks, which are explicitly excluded. Banks already benefit from tailored onboarding through the Bank of England’s New Bank Start-Up Unit and the insurer mobilisation regime. HMT clarifies that “the regime is intended for firms which are not already authorised by the FCA and are seeking permission under Part 4A of FSMA for activities that are already within the FCA’s perimeter.”
This raises an important question: are payments firms in scope?
On the face of it, the answer is no, as these firms are authorised under the Payment Services Regulations 2017 (PSRs) or the Electronic Money Regulations 2011 (EMRs), not under FSMA. However, there may be more to this. HMT has long considered consolidating or updating the PSRs and EMRs. Recent discussions have revived the possibility of bringing these regulations under the FSMA framework.
While no formal proposals or consultations have been announced, the omission of any reference to payments firms is notable, particularly given that many have innovative business models and face significant barriers to authorisation. This could subtly indicate a direction of travel towards FSMA supervision in the future.
Provisional Authorisation: Expectations and Timelines
Under the proposed regime, firms would be required to comply with FCA rules at all times during the provisional period and would remain subject to FCA supervision and enforcement. Provisional authorisation is expected to last up to 18 months, during which firms must apply for (and secure) full authorisation or cancel their permissions.
Next Steps and Legislative Process
As always, the devil is in the detail, and that detail is currently missing. HMT concludes its document with the following next steps:
“Introducing a provisional licence regime will require primary legislation, and the government will take this forward when parliamentary time allows. The FCA will engage with industry on the design of the regime and consult as necessary.”
So, while the direction of travel is promising, there is no clear timetable just yet.
How Complyport Can Help
Complyport has deep expertise in supporting firms through regulatory change and complex authorisation processes. In light of the proposed Provisional Licence Regime, here are some of the key services we offer:
- FCA Authorisation Support: We guide firms through the full FCA authorisation process, including drafting application packs, reviewing governance structures and ensuring readiness against the Threshold Conditions.
- Regulatory Change Impact Assessments: Our team helps you understand how upcoming changes, such as the introduction of a provisional licensing regime, could affect your business model, permissions and compliance obligations.
- Regulatory Business Plan Development: We assist firms in developing compelling and regulator-ready business plans that align with the FCA’s expectations, especially important for start-ups and early-stage businesses.
- Compliance Framework Design for Start-ups: We design bespoke compliance frameworks tailored for newly authorised or provisionally authorised firms, covering key areas such as financial crime, governance and conduct.
- Policy and Procedure Development: We assist in drafting and reviewing key compliance policies and procedures that align with FCA expectations, supporting a strong compliance culture from day one.
Get in Touch
To discuss how we can support your authorisation journey, provisional or full, please contact us today and book a meeting with one of our Subject Matter Experts.
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Payment Services
