UK: provisional financial services licences

(estimated 2 minute read)

Key takeaways:

• UK Government Policy Update for provisional licence regime.
• Responds to a FCA suggestion, and continues the UK Government's economic growth drive.
• It would permit:
  • limited regulated business;
  • under close supervision;
  • for a defined, time limited, period;
  • whilst working towards full authorisation.
• Proposal will require primary UK legislation - "when parliamentary time allows".

More detail

As trailed earlier in the year, the UK Government has now published the Policy Update for a provisional licence regime. It lands at a time of unprecedented pace of change in the financial services sector. (See Ashurst's regular updates at www.ashurst.com/digitalassets).

Facing fierce competition from many other international jurisdictions, the UK aspires to be "the world’s most technologically advanced global financial centre, remaining a leading jurisdiction for fintech firms to start up, scale and list.". The proposal also strongly leans into the UK Government's drive for financial services led economic growth.

The regime would target early stage firms with innovative business plans, who would struggle to meet the Financial Services Authority's (FCA) full authorisation criteria. It could help these firms establish proof of concept and raise additional capital to scale.

The proposal will not dilute the UK's high regulatory standards. The FCA will determine eligibility in line with its statutory objectives using modified and proportionate criteria (in comparison with full authorisation).

Provisional licences will be for a fixed period of up to 18 months, and subject to guardrails in terms of the amount and types of business conducted. 

The provisional regime will not be available:

• for existing authorised firms to vary their permissions;
• for permissions for activities being brought into regulation for the first time; 
• for dual-FCA and Prudential Regulation Authority (PRA) regulated firms;
• for products or services delivered over a long or deferred time frame (eg pensions advice).

The objective is to create a glidepath for firms to full authorisation.

Next steps

This is a very welcome regulatory development. In addition to facilitating licence on-ramping for innovative start-ups, it demonstrates the FCA's continued regulatory journey (eg most recently, UK fund tokenisation). For example, becoming a smarter regulator, supporting UK economic growth, enabling innovation, embracing new technology and reducing the regulatory burden.

It is important to note that the new regime will not apply to new regulated activities. We await the detail, however on the face of it this will exclude the upcoming UK regulated cryptoasset activities (our updates here and here).

The proposal requires primary legislation (an act of the UK parliament). It will progress "when parliamentary time allows". That is, it will depend upon the UK Government's competing legislative priorities. Unfortunately, the change is not imminent. In the meantime, the FCA will consult on the regime and develop the detailed plans.