Recognise will be operating in the SME lending market with its initial plan including bridging, development and commercial finance facilities.
The operation hopes to go live around the end of the first quarter of 2021 having already invested more than £40m in the business.
Announcing the granting of an authorisation with restriction (AwR), a COLG statement said: “The banking licence from the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) represents a major step in addressing the service gap for SMEs, particularly after the negative impacts of Covid-19.
“Recognise is well advanced in its readiness to meet mobilisation conditions that will lead to the removal of the deposit restriction. It currently expects this could be as early as the end of Q1 2021.
Milton Homes run-off
The group announced it had begun the process of applying for a banking licence in December 2017.
In October 2017, COLG acquired Milton Homes, an equity release lender specialising in home reversions, for £19.7m, with plans to re-enter the equity release market.
However, it did not launch a new offering and has now decided with the successful application it will not start writing new business through Milton Homes and the lender will remain in permanent run-off.
In March 2019 City of London Group (COLG) has raised £15.2m in capital to support the development of its lending business.
And in November that year David Jenkins joined Recognise as chief financial officer and Patrick Ferguson as chief risk officer.
Recognise chairman Phil Jenks (pictured) said: “We know that 2020 has been overwhelmingly tough for SMEs so we are delighted that Recognise is now in a position to give the support that SMEs need to survive, grow and play their part in the recovery of the economy.
“Receiving AwR shows the quality of what we have delivered as a business thus far, the excellent plan we have in place, and the fantastic team we have built to do this.
“As a new entrant in the UK SME banking market with no legacy book and the latest technology installed, Recognise is strongly placed to deliver on its relationship-based model and differentiated business plan.”
Group CEO Michael Goldstein added: “This represents a major milestone for the group in delivering the strategy set out in early 2018.
“UK entrepreneurs will play a key role in creating and supporting UK economic growth, and to do so they need a banking sector that is aligned to their needs and way of thinking.”