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Start-up financial services companies in the UK will be offered provisional licences so they can launch before they meet the criteria needed to be fully authorised, under plans announced by the Treasury on Thursday.
The government said a new Financial Conduct Authority licensing regime would lower the hurdles early-stage companies need to clear before being allowed to launch regulated financial services activities.
The 18-month provisional licences, which have parallels to those granted to learner drivers, are seen as a way to allow start-up companies to launch innovative financial services quicker than under the current system.
“Too many promising firms have told us their growth is being hampered by the time it takes to secure full authorisation,” said Lucy Rigby, City minister. “This new provisional licences regime will help high‑potential start‑ups and scale‑ups trade and grow sooner.”
Companies applying for a full licence from the FCA have to meet certain “threshold conditions” that can be difficult for start-ups to achieve, such as having sufficient capital or robust compliance and audit arrangements.
The FCA said the authorisation process took almost four months on average for the companies it granted full licences to in the three months to September.
Under the plans, the FCA “will set modified and proportionate expectations” for those seeking a provisional licence, the Treasury said.
The regulator would “not expect these firms to be at the same stage of readiness and organisation required for those seeking full authorisation” and they would have to provide less information than those seeking a full licence, it said.
Companies given provisional licences will have restrictions on the volume or value of business they can do. If they have not been granted a full licence by the end of the 18-month period they will be required to cease their operations.
Sheree Howard, the FCA’s executive director of authorisations and interim joint chief operating officer, said the new regime would “help remove barriers to entry, particularly for innovative and early-stage firms, so they can get up and running in a controlled environment”.
However, consumer groups said they feared the changes could lower standards and increase risks. “It’s worrying to think that financial services firms will be able to get up and running without being properly compliant,” said James Daley, head of Fairer Finance.
The new provisional licences will not be available to banks, insurers or other companies that are dual-regulated by both the FCA and the Bank of England’s Prudential Regulation Authority.
The Treasury said they were also unlikely to be available to companies offering products or services with a timeframe longer than the 18-month provisional licence period, such as pension advisers.
The FCA is planning to consult on detailed proposals for the new licensing regime, which will then require primary legislation to be passed by the government before it comes into force.
