In December 2025, HM Treasury published “Creating a Provisional Licences Authorisation Regime – Policy Update 2025”. It sets out a proposed provisional licence regime that would allow certain early-stage firms to carry on limited regulated activities for a time-limited period, under FCA supervision, while they build towards full authorisation.

This is a significant signal for UK FinTech and other early-stage firms – but it is not a shortcut to authorisation, and it is not yet live.

1. What is the provisional licence regime?

Under the proposals, the FCA would be able to:

• Grant a time-limited “provisional licence” (up to 18 months) to certain firms that are not yet ready to meet all Threshold Conditions on an ongoing basis.
• Allow those firms to undertake limited regulated business, subject to strict restrictions and enhanced supervision.
• Expect firms to use the period to build capital, governance, systems and staff so that they can meet the full Threshold Conditions and obtain Part 4A FSMA authorisation.
• If full authorisation is not granted by the end of the period (and no exceptional extension applies), permissions expire and the firm must cease regulated activities and wind down.

The regime requires primary legislation, so timing depends on Parliamentary priorities. It is a forward-looking opportunity, not an immediate route.

2. Who is it for?

In scope

The regime is intended for:

• Firms not currently authorised by the FCA;
• Seeking permissions under Part 4A FSMA;
• For activities already within the FCA’s perimeter; and
• Typically early-stage or innovative firms that cannot sensibly meet full Threshold Conditions on day one, but can operate safely in a limited, controlled way.

It is particularly relevant to firms that need “proof of concept” with real customers to secure funding or talent.

Not in scope

It is not designed for:

• Existing authorised firms seeking variations of permission;
• Firms seeking permissions for newly regulated activities;
• Firms dual-regulated by the PRA and FCA (banks and insurers already have mobilisation routes);
• Business models with long-term or heavily deferred products where harms may emerge only after the 18-month period (for example, certain pensions advice activities).

The FCA will ultimately decide eligibility within these boundaries and may initially focus on specific sectors to support a controlled rollout.

3. How would it work?

Application and assessment

The FCA will create a separate application process for provisional licences. Expectations will be modified and proportionate:

• Threshold Conditions assessed for the provisional period only;
• Firms are not expected to be as fully “ready, willing and organised” as for full authorisation.
• Firms will submit information relevant to the provisional licence. Much of the detailed material for full authorisation can be developed during the provisional period.

However, firms must still be honest, open and cooperative, and able to demonstrate they can operate safely within the proposed limits.

Duration, restrictions and supervision

Key features include:

• Duration: Up to 18 months.
• Extensions: Only in limited cases, e.g., where a firm has applied for full authorisation in good time, complied with FCA requests, and the FCA has not yet decided.
• Restrictions: The FCA may cap volumes, values and product types, and prohibit long-term business extending beyond the licence period.
• Supervision: Firms must comply with relevant FCA rules and continue to meet Threshold Conditions for the provisional period; the FCA will use its full supervisory and enforcement powers, with closer monitoring than for a comparable fully authorised firm.

Exit routes

By the end of the period, firms either:

1. Achieve full authorisation via a bespoke process for provisional licence firms; or
2. Lose permissions and must wind down, working with the FCA to minimise customer detriment.

4. Benefits for early-stage firms

If implemented as planned, the regime could offer several advantages:

• Earlier route to market: Firms can start limited live operations sooner, generate revenue and gather customer feedback, rather than waiting for full authorisation with a fully built-out infrastructure.
• Investor credibility: A provisional licence demonstrates that the FCA considers the model sufficiently robust to operate in a controlled environment. This can support fundraising by providing a clear regulatory pathway and milestones.
• Structured mobilisation period: The 18-month window acts as a formal mobilisation phase to:
  • Build governance, risk and compliance functions;
  • Recruit SMF holders and key teams;
  • Implement and test systems and controls;
  • Finalise outsourcing and operational arrangements.
• Early, constructive FCA engagement: Firms benefit from ongoing interaction with supervisors, enabling course-correction before issues become entrenched and smoothing the transition to full authorisation.

5. Key risks and points to watch

The regime is not without risk. Firms should be alive to:

• Uncertain timing: It depends on primary legislation. It cannot be the only regulatory strategy.
• Eligibility limits: Some models will fall outside scope, or face tight restrictions.
• The 18-month deadline: Building to full Threshold Conditions, evidencing compliance and preparing a full authorisation application in that time is challenging.
• Commercial constraints: Volume and product caps may materially affect revenue and scaling assumptions.
• Full regulatory expectations: Conduct, Consumer Duty, financial crime and operational resilience obligations still apply; poor performance can damage future authorisation prospects.
• Wind-down obligations: Firms must have a realistic, funded wind-down plan and accept that exit is a genuine scenario.

6. How MEMA can support early-stage firms

MEMA consultants can help firms treat the provisional licence regime as a structured opportunity rather than a regulatory gamble. We can support you to:

• Assess fit and strategy: Map your business model and permissions against the proposed regime and existing routes, and design a realistic regulatory strategy.
• Plan and prepare applications: Develop a proportionate regulatory business plan, governance and control framework, and prepare the provisional licence application in a way that aligns with FCA expectations.
• Design the provisional-phase operating model: Define a viable restricted product and customer scope, build an appropriate control environment, and design MI and reporting to satisfy management, board and regulators.
• Develop wind-down and contingency plans: Create a credible wind-down plan embedded in your capital, contractual and operational set-up.
• Deliver the roadmap to full authorisation: Translate Threshold Conditions into a structured 18-month project plan, support delivery, and prepare the full authorisation submission.

If you are an early-stage financial services or FinTech firm considering how to enter or scale in the UK market, and want to understand whether the provisional licence regime should form part of your strategy, MEMA can help you plan now and move quickly when the regime goes live.

You can book a discussion with our consultants here:

https://koalendar.com/e/meet-mema-consultants

This article is for general information only and does not constitute legal, regulatory or investment advice.

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