This is in response to the government asking regulators to introduce measures to enable growth and avoid limiting investment.
The provisional licence regime will require primary legislation, and the government is expected to bring this forward when parliamentary time allows.
Currently, firms must meet minimum standards required by the Financial Conduct Authority (FCA), both during the authorisation decision stage and on an ongoing basis.
The Treasury said some firms found it hard to meet all the conditions, and the delay in obtaining permission from the FCA could limit their ability to secure necessary funding or recruit the right skills needed to grow.
A provisional licence regime is expected to allow firms to undertake limited regulated business under close supervision for a defined period. It is expected that by the end of that period, firms should be able to meet the regulator’s requirements and be granted full authorisation.
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The Treasury said this would benefit early-stage firms, particularly those with an innovative business model. Firms can also be supported to provide proof of concept.
This will not apply to firms subject to regulation by the FCA and Prudential Regulation Authority (PRA).
Products and services delivered over a long or deferred time frame, where harms to customers may not be realised until the provisional licence period expires, may also not be suitable for the regime. For example, this could relate to pension advice.
A new process will be set up for firms to apply for a provisional licence, with modified and proportionate expectations. Firms will not be expected to be at the same stage of readiness when seeking a provisional licence as they would when applying for full authorisation.
Firms will only need to supply the relevant information required for a provisional licence, deferring the details needed for full authorisation.
If a firm has not achieved full authorisation at the end of the provisional licence period, its permissions will expire and it will need to stop undertaking regulated activities. Firms will be required to wind down.
If a firm has applied for full authorisation in good time before the end of the provisional licence period but has not received a decision from the FCA, an extension of the provisional licence period can be made available.
The FCA will engage with the industry on the design of the regime and consult where necessary.
