Provisional FCA Licences: Moving Faster Without Cutting Corners

Last week’s announcement of a “provisional licences” regime for the financial services sector is a significant shift in UK authorisations and a measured win for fintech and other early‑stage firms. The government has confirmed its intention to legislate for time‑limited permissions that let qualifying firms undertake a subset of regulated activities while progressing toward full FCA authorisation. The aim is to reduce the dead time between product readiness and market entry without compromising consumer protection. 

Why this matters 

Anyone who has lived through authorisation knows the pain: months waiting for a decision, fundraising ticking down, and a product that cannot be tested at scale with real customers. The data points are stark. In the e‑money space, for example, approvals have been thin on the ground, with reporting highlighting long timelines and very few successful applications in recent periods; fuel for founder frustration and investor caution. The provisional licence is designed to break that logjam by allowing limited trading during a window of up to 18 months, under safeguards and with close regulatory oversight. 

This sits squarely within the government’s broader Regulation Action Plan and the FCA’s growth narrative, balancing innovation with risk. The Treasury’s policy update makes clear that the regime is intended to lower barriers to entry for high‑potential firms while maintaining standards. Importantly, this is not a “lite” authorisation; it is time‑limited, conditional, and revocable if firms fail to meet ongoing requirements or make sufficient progress toward full permissions. 

What is being proposed? 

While detailed FCA rules will follow, the government’s policy update sketches the core architecture: 

• Scope & eligibility: Early‑stage firms seeking FCA authorisation that cannot yet meet all threshold conditions but can operate safely in a controlled environment. Expect focus on business models with lower systemic risk and clear consumer protection mitigants.
• Duration: Up to 18 months of provisional permission to perform limited regulated activities aligned to the firm’s business plan.
• Conditions: Firms must meet streamlined threshold conditions, maintain adequate governance, systems and controls, and comply with the FCA’s conduct requirements throughout the provisional period.
• Oversight & exit: The FCA will supervise firms closely. If full authorisation is not granted by the end of the window, or if standards slip, permissions will lapse. 

Crucially, primary legislation is required. That means Parliamentary time, drafting, and consultation windows before the regime goes live. But the political signal is unmistakable: regulation should enable growth, not hold it back. 

The investor lens: confidence without complacency 

For VCs and corporate venture arms, the regime should de‑risk the early execution phase. Being able to transact with customers—even within constrained permissions—creates real‑world metrics (acquisition costs, churn, complaint rates, fraud loss, capital burn) that are more informative than pilots under hosting arrangements. That in turn helps investors validate product‑market fit and operational discipline earlier, which can unlock tranche‑based funding tied to regulatory milestones. 

At the same time, provisional authorisation is not a guarantee of full authorisation. The FCA’s supervisory stance and existing expectations under the Consumer Duty remain in place. If the firm cannot demonstrate fair value, appropriate customer support, and effective outcome monitoring, provisional permissions won’t save a weak proposition. Investors should therefore treat provisional licences as a signal of the firm's progress towards regulatory readiness, not a substitute for deep due diligence. 

Practical implications for founders 

If you’re planning to apply, assume a “controlled launch” mindset. The following are likely to be non‑negotiables: 

• Governance & people: Even under streamlined conditions, the FCA will expect clearly articulated SMF roles, accountable decision‑making, and evidence your management team can identify and mitigate risks commensurate with the activities you wish to perform.
• Systems & controls: Provisional licences won’t excuse weak financial crime controls, safeguarding arrangements (where applicable), complaints handling or operational resilience. Treat them as minimum viable compliance, not aspirational “phase‑two” features.
• Consumer Duty readiness: You’ll need product governance, fair value assessments, and customer journey testing in place from day one. Document your outcomes monitoring and the feedback loop that drives remediation.
• Capital & insurance: Time‑limited permission does not negate prudential expectations. Ensure adequate regulatory capital, liquidity runway, and PI insurance consistent with your activities. The detail will depend on the final FCA design.
• Authorisation trajectory: The FCA will want to see a credible plan with milestones toward full authorisation (including policy development, recruitment, system enhancements) so progress can be evidenced during supervision. 

How to prepare (a founder’s playbook) 

• Map your activities to permissions. Identify the specific regulated activities you need to start, the risks they present, and the controls you’ll operate under provisional status. Keep the scope tight to increase eligibility and reduce supervisory friction.
• Pre‑build key controls. Minimum viable compliance should cover onboarding and KYC, transaction monitoring, safeguarding (for payments/e‑money), vulnerable customer handling, complaints, and incident response. Tie each control to a Consumer Duty outcome.
• Evidence readiness. Assemble a dossier: governance chart, SMF statements of responsibilities, MI packs, risk register, compliance monitoring plan, training records, and third‑party due diligence (e.g., cloud or AML vendors). This mirrors best practice in full authorisations and will translate well when you progress.
• Plan the runway. The regime buys time but does not provide an infinite runway. Model your cash burn for 18 months, stress‑test for delays, and sequence hiring so you can scale compliance and operations in step with permissions.
• Communicate with investors. Use the provisional period to set data‑rich milestones (e.g., complaint rate thresholds, fraud loss ceilings, cost‑to‑serve targets) that demonstrate control quality and customer outcomes. This reframes “regulatory risk” as a managed execution risk.

Risks and safeguards

Speed can amplify risk. Three areas deserve particular attention:

•  Perimeter creep: It’s easy for “limited activities” to expand in practice—through marketing claims, distribution partnerships, or product changes. Treat scope management as a board‑level control with pre‑approved escalation routes.

• Operational resilience: Even small firms can generate outsized harm if they fail during payments, custody, or advice processes. The FCA will expect proportionate resilience planning (BCP, incident reporting, outsourcing oversight).
• Consumer outcomes: Under Consumer Duty, early‑stage firms must prove fair value and avoid foreseeable harm. For example, pricing experiments must sit within a framework that is transparent and evidence‑based.

The bigger picture: regulating for growth

 The UK wants to be the world’s most technologically advanced global financial centre, and this regime is a tangible step toward aligning regulatory process with that ambition. It responds to the Prime Minister‑Chancellor letter to regulators at the end of 2024 and follows through on the 2025 Regulation Action Plan. The message from both HM Treasury and the FCA is consistent: keep standards high but remove unnecessary friction. 

So, what to watch for?

• Legislative timetable: The enabling primary legislation and any FCA consultation papers will set the parameters, including scope, eligibility criteria, supervisory approach, and reporting expectations.

• Interaction with existing routes: How provisional licences interplay with regulatory hosting or the Designated Activities Regime in adjacent areas (e.g., short selling) will be worth monitoring, especially for firms planning multi‑stage market entry.
• Data‑driven supervision: Expect the FCA to leverage MI from provisional firms to calibrate risk. That may evolve into sector‑level guidance or targeted restrictions if harm indicators trend unfavourably.