Treasury updates on provisional licence regime

Following the Government’s announcement that it plans to create a regime to allow the FCA to grant limited-time permissions to start-up firms applying for authorisation, so they can start their business in a controlled environment while still seeking full authorisation, Treasury has published details of how it plans the regime will work.

It thinks the regime will be most appropriate for firms with innovative business models that might take longer than others to meet the full authorisation requirements, and one key benefit is hoped to be to allow firms to get funding before full authorisation.

Key elements of the proposals are:

• it will be used for first authorisations for solo-regulated firms – so not for dual-regulated firms or VOPs, and also not when the application is for newly-regulated activities;
• it will not be used for products or services where any harm to customers is unlikely to emerge until after the provisional licence has expired, such as pensions advice;
• Treasury will legislate to give the FCA the power to determine what firms are eligible within parameters, and to set up a new application process;
• under the process, the FCA can grant a provisional licence to firms which it assesses can meet the threshold conditions for the period of the provisional licence – and the conditions will be proportionate;
• the FCA will expect firms to be able to show they can wind-down at the end of the provisional licence period without customer detriment, if this becomes necessary;
• provisional licences can last for fixed periods of up to 18 months;
• the FCA will impose restrictions on what firms on a provisional licence can do – such as on volume or value limit, and it may prohibit firms from carrying on business that would last beyond the end of the licence period;
• the FCA will be able to use its full suite of enforcement powers on provisionally licensed firms;
• Firms will have to comply with relevant rules while provisionally licensed, and the FCA will develop a bespoke full application process for them.

The Government will introduce the primary legislation required to create the regime “when time allows”.