The UK government wants to let start-ups operate under “provisional licences” while they work towards full authorisation. It is a bold attempt to fix a slow, rules-heavy system. Whether it can revive the country’s claim to be the world’s favourite fintech launchpad is a subtler question.
When HM Treasury quietly published a policy update on “provisional licences” in early December, it did not read like a revolution. It was a slim, 14-page document, couched in Whitehall prose about “threshold conditions”, “mobilisation” and “Regulation Action Plans”.
Yet behind the jargon sits a sharp change of direction. For the first time, the UK plans to let some financial services start-ups trade with real customers under a time-limited licence, for up to 18 months, while they finish building the systems, capital base and governance needed for full authorisation.
From the Treasury’s point of view, the goal is simple: make it easier for promising young firms to prove their model and raise capital before they are fully “regulation-grade”, without lowering standards permanently. For founders and investors used to long waits and multiple feedback rounds with the Financial Conduct Authority (FCA), it sounds like a long-demanded fast lane.
The timing is not accidental. Global fintech funding has slumped. According to industry body Innovate Finance, global investment in fintech fell 20% in 2024 to $43.5bn, down from $54.2bn in 2023, the third consecutive annual decline. The UK still held on to second place behind the US, attracting $3.6bn across 576 deals and more capital than the next five European markets combined – but that total was 37% lower than in 2023.
In a world where capital is scarce and founders can shop around, licensing friction becomes a competitive variable. London’s bet is that it can stay a magnet for fintech by trading a little certainty for more speed.
A new way into the regulated club
Under the proposed regime, the FCA would be able to grant “provisional licences” – time-limited permissions to conduct a narrow range of regulated activities – to firms that are not yet authorised but intend to become fully regulated under Part 4A of the Financial Services and Markets Act (FSMA).
Several design choices are crucial:
- Who can apply. The regime is aimed at new firms that fall solely within the FCA’s perimeter. It explicitly excludes dual-regulated banks and insurers, which already have their own “mobilisation” routes. Firms seeking a variation of permission, or bringing entirely new activities into regulation for the first time, are also outside scope.
- What they can offer. The policy paper says the regime is not intended for products “delivered over a long or deferred timeframe”, where harm may only become apparent after the licence expires. In practice that means pensions advice and other long-term products are unlikely to qualify, while payments, e-money, consumer credit, wealth tools and some types of SME finance could.
- How long it lasts. A provisional licence would last up to 18 months, with the possibility of an extension only in limited cases where the firm has applied for full authorisation “in good time” and the FCA has not yet reached a decision.
- How constrained it is. The FCA would be required to impose tight restrictions on the volume and type of business a firm can do under provisional permissions, including caps on the value or number of customers and prohibitions on activities that run beyond the licence term.
- What is expected of firms. The regulator will still assess firms against its statutory “threshold conditions” – but only for the period of the provisional licence, not on an open-ended basis. Firms will need enough financial and non-financial resources to operate safely for 18 months, with credible plans to build up capital, systems and staff to full-authorisation standards over time.
- What happens at the end. If a firm has not been granted full permission by the end of the provisional period, its licence expires and it must wind down its remaining business in an orderly way, working with the FCA.
The regime sits somewhere between a traditional authorisation route and a sandbox. Unlike the FCA’s sandbox – or similar programmes in Singapore and Abu Dhabi – this is not a pure testing environment. Customers using provisionally licensed firms will not be told they are part of an experiment; they will be dealing with firms that are, for a time, fully inside the perimeter, albeit with extra guardrails.
That combination of real business, lighter upfront expectations and tight supervision is what makes the regime both attractive and controversial.
Why London is reaching for the accelerator
The Treasury’s policy paper lays out the official diagnosis with unusual bluntness. Start-ups with innovative models, it says, often struggle to demonstrate that they meet all the FCA’s threshold conditions “right away”. That delays their ability to start trading, which in turn “reduces their ability to secure necessary funding or recruit the right skills and experience to grow”.
The evidence for delay is not hard to find:
- According to FCA data summarised by law firm Harper James, new firm authorisations took an average of 110 days between October and December 2024 – within the six-month statutory target, but with many more complex cases running close to a year.
- In higher-risk segments the picture has been much worse. A freedom-of-information request reported by Finextra found that crypto-asset registration applications took an average of 459 days to approve over the three years to April 2024, with 186 firms withdrawing rather than push on through the process.
- More broadly, government survey work suggests that UK businesses spend around eight days a month dealing with regulation, up from 6.6 days in 2022 – and that innovative and high-growth firms feel the burden most acutely.
The government’s response has been to push regulators explicitly to treat growth and competitiveness as part of their job. New secondary objectives for the FCA and Prudential Regulation Authority (PRA), introduced in 2023, sit alongside a “Regulation Action Plan” that commits to cutting the overall administrative burden of regulation by 25% by the end of this Parliament, equivalent to £5.6bn a year in saved effort.
Within financial services, this has already yielded several reforms:
- The FCA has voluntarily shortened its authorisation targets, promising to decide new firm and variation-of-permission applications in four months (down from six) for complete files, and 10 months (down from 12) for incomplete ones. Payments and e-money firms are promised decisions within three months for complete applications.
- HM Treasury has proposed legislating to make those shorter deadlines statutory, as part of its Financial Services Growth and Competitiveness Strategy.
- A new joint FCA–PRA “scale-up unit” has been announced to support fast-growing firms, alongside an overseas “concierge service” to attract international players.
The provisional licence regime is the next step in that same journey: move from simply processing applications faster to changing the structure of the authorisation pipeline itself.
How much difference can 18 months make?
For founders, the benefit is obvious. Under today’s rules, a fintech that wants to operate as, say, a payment institution has to build its governance, systems and capital base to full strength before it can trade, all while burning investor cash and paying compliance consultants. Under the proposed regime, it could instead:
- Apply for a provisional licence with a thinner, more focused dossier.
- Launch a limited product to a capped set of customers.
- Use the 18-month window to refine its model, raise more capital on the back of live performance and build the infrastructure required for full authorisation.
Crucially, the FCA would still have its full enforcement powers during the provisional period. The policy paper emphasises that these firms will be subject to enhanced monitoring and close oversight, not lighter supervision.
That mix of lighter entry requirements and tougher day-to-day supervision reflects a broader shift in regulatory thinking. Rather than trying to answer every question up front, regulators are experimenting with “live-fire” models: let firms operate earlier, but keep them on a tighter leash.
Other hubs have been down a similar path:
- The Monetary Authority of Singapore’s sandbox regime allows firms to test products in a controlled environment with targeted relief from rules, and its Sandbox Express route offers pre-defined experiments with approvals in as little as 21 days.
- Abu Dhabi Global Market’s RegLab lets fintechs operate under a specially tailored framework, explicitly giving them space to test solutions “without being subject to the full suite of regulatory requirements at the onset”.
The UK’s twist is to build this logic into the mainstream authorisation regime rather than cordon it off as an experiment. If it works, it could make London look less forbidding to founders comparing it with Singapore, Dubai, Dublin or Vilnius.
But how much difference can 18 months really make?
One answer lies in the funding data. London remains a heavyweight: in 2024 the UK captured around 10% of the global fintech market by value, according to Innovate Finance commentary, and attracted more investment than the next five European countries combined. Yet the drop to $3.6bn in 2024 and a modest $7.2bn in the first half of 2025 suggest that the golden era of easy capital is over, at least for now.
In that environment, the ability to generate regulated revenues six or nine months earlier could be the difference between life and death for a young company – or between staying in London and shifting to a jurisdiction with looser rules.
The promise – and the limits – of “proportionate” authorisation
There are three obvious upsides to the provisional licence idea.
1. A more realistic path from idea to scale
Many of the UK’s success stories – from neobanks to Buy Now, Pay Later providers – started life with more limited permissions, such as e-money licences or partnerships with fully regulated institutions. But the step from those “light” permissions to a full-fat licence has often been jarring, not least because the FCA expects firms to be “ready, willing and organised” from day one.
By allowing the regulator to tailor threshold conditions to the firm’s stage of development, the provisional regime acknowledges that a start-up’s internal systems will be immature and evolving. The FCA will still require appropriate controls, but it can accept – for 18 months – that not every policy, IT system or committee structure is fully built out.
In theory, that should reward strong underlying businesses with thin early-stage infrastructure, rather than firms that are good at form-filling but weak on fundamentals.
2. A signal that “open for business” is more than rhetoric
For several years, fintech CEOs have grumbled that London talks a good game on innovation but behaves like a risk-averse supervisor with slow processes, particularly in digital assets and high-risk payments. The data on crypto-asset registrations – 459 days on average to approve, with hundreds of withdrawals – have become a shorthand for this frustration.
The provisional licence regime gives ministers something concrete to point to when they argue that regulators now have growth and competitiveness baked into their mandates. Coupled with shorter statutory deadlines, a scale-up unit and a new “concierge” service for overseas entrants, it suggests the UK is willing to experiment with its regulatory plumbing, not just tweak rulebooks.
3. Better information for investors – and for the FCA
From the FCA’s perspective, a time-limited authorisation window offers a rich stream of real-world data. Rather than trying to judge a business model solely on paper, supervisors can watch how it performs under tightly constrained conditions: who it signs up, what complaints look like, how it handles fraud and operational incidents.
For investors, those 18 months of regulated operating history provide a far more valuable signal than a slide deck and a sandbox pilot. In a capital-scarce world, that may help separate credible ventures from more speculative plays.
The risks: two-tier regulation and consumer trust
For all its promise, the regime also poses real risks – both for consumers and for the UK’s regulatory brand.
1. A two-speed system?
Consumer advocates were already wary when the government first floated the idea of “fast lanes” for approvals in its Regulation Action Plan. The fear is that formalising speed as an objective – alongside safety and soundness – will create pressure to wave through marginal cases, and in the process erode the very trust that makes London attractive.
The provisional licence model tries to guard against this by:
- limiting eligibility to certain products and firms;
- imposing hard business caps and short time limits; and
- keeping the FCA’s full enforcement arsenal in play throughout.
Even so, there is a risk of a two-tier regime: one for firms that can afford to build to full threshold-condition standard upfront, and another for those who operate under stricter day-to-day oversight but lighter entry checks. If the latter cohort skews towards more complex or higher-risk models (as seems likely), the FCA will need enough staff with the right skills to supervise them intensively – the very constraint that slowed crypto approvals in the first place.
2. Who really bears the risk of failure?
The policy paper leans heavily on “orderly wind-down” as a backstop, requiring provisionally licensed firms to show how they will minimise disruption if they fail to get full authorisation.
In practice, wind-downs are rarely painless. Customers may face frozen accounts, hurried migrations to alternative providers or messy communications when a firm’s permissions expire. Even within stricter business caps, repeated failures could undermine confidence in new entrants and make consumers more reluctant to try unfamiliar brands.
Much will depend on the FCA’s willingness to use its enforcement toolkit early: suspending permissions, imposing business restrictions and intervening on communication if a provisional firm starts to wobble. That is a delicate balancing act. Act too quickly and the regulator risks killing promising businesses; act too slowly and it risks headline-grabbing failures.
3. Legislative and execution risk
There is also the risk that the regime simply arrives too late. Introducing provisional licences requires primary legislation, which the government says it will bring forward “when parliamentary time allows”.
Even if a bill is introduced in 2026, the FCA will then need to:
- consult on the detailed rules;
- design new application processes and internal workflows; and
- hire or reassign staff to supervise provisionally licensed firms.
It is easy to imagine the first cohort of firms only entering the regime several years after the original political commitment, by which point other centres may have moved on.
Meanwhile, some of the industry’s most pressing concerns – not least around open finance, data access and digital assets – lie outside the scope of this specific reform. If the UK is slow to resolve those issues, an 18-month fast lane for certain activities may not be enough to persuade founders to commit.
Global competition: sandbox versus scale
To understand what is really at stake, it helps to look beyond the UK.
Singapore’s approach shows one model: keep the bar for full licences high, but make it very easy to experiment in a sandbox. MAS’s Sandbox Express and Sandbox Plus programmes deliberately marry regulatory flexibility with targeted grants and access to investor networks, encouraging firms to test novel ideas quickly while maintaining a strict boundary between experiments and fully regulated activity.
Abu Dhabi’s ADGM has taken a similar tack, using its RegLab and Digital Lab to attract digital-asset and regtech players with an explicit promise of risk-based, technology-neutral supervision. Firms can test propositions, iterate with the regulator, and then “graduate” into a more traditional permission set when they are ready.
The UK’s provisional licence proposal is, in part, a response to those models – but it is also a function of scale. London is home to over 3,500 fintech companies, according to City of London Corporation data, and accounts for eight of the top ten fintech deals in EMEA. That means the FCA faces a far larger pipeline of potential applicants than a smaller hub.
In that context, the regime can be seen as a way to triage demand:
- Mature, well-capitalised firms can go straight into the standard authorisation process.
- Early-stage, innovative firms that struggle to meet threshold conditions can be diverted into a provisional track with tighter limits and closer monitoring.
- Experimental concepts stay in the sandbox until they are ready to become businesses.
Done well, that triage could reduce bottlenecks and give frontier models a more predictable path into the mainstream. Done badly, it could produce confusion about the status of firms and leave both investors and customers unsure what protections they enjoy.
Can speed rescue the UK’s fintech “crown”?
Whether this regime “saves” the UK’s fintech edge depends on what you think that edge really is.
If you believe London’s advantage rests mainly on capital and deal flow, then the fast-track licence is, at best, a supporting actor. The bigger questions lie with pension-fund reforms, capital-markets rules and whether domestic institutional investors will finally back late-stage fintech at scale – issues that industry groups have been raising since at least 2024.
If, instead, you see the UK’s strength in regulation-as-export – a reputation for high standards and pragmatic rule-making that other centres copy – then provisional licences are more central. They show a regulator willing to experiment with proportionate authorisation, to admit that its processes have sometimes been too slow, and to hard-wire growth into its own key performance indicators.
In reality, both stories matter. The UK still holds around a tenth of the global fintech market, and fintech adds billions of pounds to regional economies beyond London – the North of England alone is estimated to gain around £5bn a year from the sector, with ambitions to reach £6bn by 2030. That is a base worth defending.
The provisional licence regime will not, on its own, determine whether the next Revolut or Zilch chooses London over Singapore or New York. But it will shape the first 18 months of life for hundreds of smaller firms: whether they can raise money, hire, and learn from real customers without betting the company on a one-shot, all-or-nothing authorisation process.
The more interesting test may not be how many licences the FCA grants, but how it uses them. If the regulator leans into the spirit of the regime – backing truly innovative models while acting decisively when things go wrong – the UK could emerge with a more dynamic, better-calibrated pipeline of regulated fintechs.
If, on the other hand, provisional licences become just another paperwork hurdle, or a way to badge existing practice without changing underlying behaviours, then the reform will amount to little more than a new label on an old queue.
For now, what the policy paper offers is permission to hope: that in a tougher funding climate, the UK is prepared to rethink the trade-off between speed, certainty and innovation, rather than simply exhorting its regulators and founders to “do more with less”.
