HMT Proposes New Provisional Licence Regime to Accelerate FCA Authorisation for Start-Ups

On 4 December 2025, HM Treasury (HMT) published a policy paper setting out the UK Government’s intention to introduce a provisional licences authorisation regime for early-stage financial services firms seeking FCA authorisation. This reform, first promised in the Regulation Action Plan (March 2025), aims to reduce friction for innovative start-ups while preserving high standards of consumer protection and market integrity.

The proposal responds directly to challenges faced by early-stage firms that cannot immediately meet all the FCA’s Threshold Conditions, often slowing their ability to secure funding, recruit talent, or validate their business model.

Why a Provisional Licence Regime?

As the policy paper explains, the UK’s regulatory standards are intentionally robust: the FCA must be satisfied that firms meet the Threshold Conditions at authorisation and continuously thereafter. These include appropriate financial resources, governance, risk management, systems and controls, and the fitness and propriety of key individuals.

However, many early-stage and innovative firms struggle to demonstrate full readiness from day one. HMT highlights that this delay can limit a firm’s ability to:

• Secure investment

• Recruit specialised skills

• Test their business model

• Build necessary infrastructure for full authorisation

The UK Government now recognises that requiring full readiness before any regulated activity begins can itself create unnecessary barriers.

The proposed provisional licence regime is designed to address this gap.

What the Provisional Licence Regime Will Do

The new regime aims to allow eligible firms to operate within the regulatory perimeter earlier, but in a controlled and time-limited way.

Key objectives include:

• Support innovation by allowing limited regulated activity sooner

• Enable proof of concept under close FCA supervision

• Facilitate investment by demonstrating early operational capability

• Maintain consumer protection through restrictions and oversight

• Create a proportionate pathway to full authorisation

As HMT notes, firms will be allowed to conduct limited regulated business under close supervision for a defined, time-limited period, with the expectation that by the end of that period they will be ready for full authorisation.

Who Will Be Eligible

HMT sets out clear eligibility boundaries:

• Firms not currently authorised by the FCA

• Firms seeking permissions under Part 4A FSMA

• Activities that are already within the FCA’s regulatory perimeter

• Firms not dual-regulated by both the FCA and PRA (those firms have PRA “mobilisation” routes available)

• Firms offering products not characterised by long-term or deferred harms, such as pension advice, which is unlikely to be suitable given risks that may crystallise after the licence period ends

The regime is especially aimed at early-stage businesses with innovative business models, which may benefit most from demonstrating viability early.

How the Regime Will Be Designed

HMT’s policy paper provides detailed insight into the proposed design of the regime. Highlights include:

1. A New Application Pathway: The FCA will develop a new application process with modified and proportionate expectations. Firms will only need to provide information relevant to the provisional licence, while details needed for full authorisation can be supplied later.

2. Proportionate Assessment of Threshold Conditions: The FCA will assess whether a firm meets the Threshold Conditions for the duration of the provisional licence only, recognising that key aspects of the business, systems, capital, and governance may still be developing. This approach acknowledges start-ups’ evolving nature while preserving required safeguards.

3. Duration: Up to 18 Months: The provisional licence will last for up to 18 months, with limited scope for extensions, for example, when a firm has applied for full authorisation in good time but the FCA has not completed its decision.

   
   

4. Restrictions on Regulated Business: To prevent consumer harm, firms may be subject to caps on transaction volumes or values, limits on types of customers or products and restrictions on long-term or multi-year business.

   
   

5. FCA Rules and Oversight Still Apply: During the provisional licence period, firms must comply with applicable FCA rules and continue to meet the Threshold Conditions. The FCA retains full supervisory and enforcement powers and enhanced monitoring and close oversight will apply.

   
   

6. Transition to Full Authorisation: The FCA will create a bespoke pathway for provisional licence holders applying for full authorisation, incorporating information submitted during the provisional period, ongoing supervisory dialogue, and tailored feedback to support firms toward full readiness.

   
   

7. What If Full Authorisation Isn’t Achieved? If a firm cannot meet requirements by the end of the licence period, its permissions will expire and it must cease regulated activities. It will be required to wind down any live products in an orderly manner, and the FCA will oversee the wind-down process to reduce customer detriment.

Why This Matters for Innovators and Investors

The provisional licence regime could be transformative for early-stage firms, particularly fintechs, regtechs, and emerging financial models.

The benefits include:

• Accelerated market entry, where firms can operate sooner

• Proof-of-concept in real-world conditions, not just sandbox simulations

• Stronger investment case, where regulated status increases investor confidence

• Ability to build governance and systems iteratively

• Continued focus on consumer protection, with proportionate safeguards

This regime represents a shift toward outcomes-based, proportionate regulation, aligning with the UK’s ambition to remain the world’s most advanced and competitive global financial centre.

Next Steps

As HMT confirms, the provisional licence regime requires primary legislation, which the government will introduce when parliamentary time allows. The FCA will then:

• Develop detailed rules and operational processes

• Engage with industry stakeholders

• Consult as necessary on the regime’s final structure

In parallel, firms should begin assessing:

• Whether their model would qualify under the scope

• What minimum-safeguard systems they can put in place for a provisional assessment

• How they might demonstrate the ability to wind down, if required

• How a staged approach to authorisation might support investment and hiring

• What their 12–18 month path to full authorisation could look like

As legislative progress unfolds and the FCA begins consultation, firms should closely monitor the regime’s development and start planning how they might leverage this new pathway.

Contact Us

Contact Compliance Angle at info@complianceangle.co.uk or call +44 7427 792594 to schedule a free consultation and ensure your firm stays aligned, efficient and ready for the next phase of UK regulatory reform.