FCA Threshold Conditions and Part 4A Permission Explained
Every firm that carries on regulated activities in the UK needs permission to do so, and every firm with that permission must meet a set of minimum standards, the threshold conditions, from the day it applies to the day it stops being regulated. These two ideas sit at the heart of the authorisation process, and they are where the people a firm names, especially its Senior Managers, matter most. This guide explains what Part 4A permission is, what the threshold conditions require, how the regulator assesses them, and what happens when a firm adds activities through a variation of permission.
What Is Part 4A Permission?
Under the Financial Services and Markets Act 2000 (FSMA), it is a criminal offence to carry on a regulated activity in the UK by way of business unless you are authorised or exempt. Part 4A of FSMA is the route by which most firms become authorised: the FCA, or the PRA for dual-regulated firms, grants a firm permission to carry on specified regulated activities. That grant is known as Part 4A permission.
A firm’s permission is specific. It sets out which regulated activities the firm may carry on, in relation to which investments or products, for which types of customer, and often subject to limitations or requirements, such as not holding client money. The detail appears on the firm’s entry in the Financial Services Register. A firm that goes beyond its permission is acting outside its authorisation, which is a serious regulatory breach.
How it differs from other routes
| Route | Who uses it | Key difference |
|---|---|---|
| Part 4A permission | Most investment, insurance, banking, consumer credit, mortgage and advice firms | Full FSMA authorisation; threshold conditions apply; firms are within the SMCR |
| Payments and e-money authorisation or registration | Payment institutions and e-money institutions | Granted under the Payment Services Regulations 2017 or the Electronic Money Regulations 2011, with their own conditions, rather than under Part 4A |
| MLR registration | Cryptoasset businesses (under the current regime) and some other firms | Registration for anti-money laundering supervision only; not permission to carry on FSMA regulated activities |
| Appointed representative | Firms acting under an authorised principal | Exempt rather than authorised; the principal takes regulatory responsibility |
The boundaries are changing in places, most notably for cryptoassets, which are moving into a full FSMA authorisation regime. Check the FCA’s current guidance for your activity. Our guides to payments and e-money authorisation and going directly authorised cover two of the most common routes in more detail.
The Threshold Conditions
The threshold conditions are the minimum standards a firm must meet to be given Part 4A permission and to keep it. They are set out in Schedule 6 to FSMA and explained in the Threshold Conditions (COND) sourcebook of the FCA Handbook. For firms regulated only by the FCA, the conditions are:
| Condition | What it requires, in brief |
|---|---|
| Legal status | For some activities, such as accepting deposits or effecting insurance contracts, the firm must be a particular type of legal entity |
| Location of offices | A UK company must have its head office, and in some cases its registered office, in the UK |
| Effective supervision | The firm must be capable of being effectively supervised, including through its group structure, close links and the way it operates |
| Appropriate resources | The firm’s financial and non-financial resources, including its people, systems and controls, must be appropriate to its activities |
| Suitability | The firm must be a fit and proper person, considering among other things the people who manage it and whether its affairs are conducted soundly and prudently |
| Business model | The firm’s strategy for doing business must be suitable for a person carrying on the regulated activities it intends to carry on |
Dual-regulated firms, such as banks and insurers, must meet the FCA’s conditions and a separate set of PRA threshold conditions focused on safety and soundness and, for insurers, policyholder protection. The details differ, so dual-regulated firms should read both. Our guide to the PRA and the FCA explains how the two regulators divide responsibility.
Where People Come In
Two threshold conditions turn directly on the people a firm puts forward: appropriate resources and suitability.
Appropriate resources
Non-financial resources include the skills and experience of the people running the firm and the size of its compliance, risk and financial crime functions. A firm that plans to grow quickly with one part-time compliance officer and MLRO, or a payments business whose financial crime controls rest on someone with no payments experience, will struggle to show its resources are appropriate. The regulator looks at whether the people, and the time they give, match the business plan. Our guide to sizing a fractional MLRO or compliance officer shows how to evidence that.
Suitability
Suitability asks whether the firm is fit and proper, and that depends heavily on its management. The regulator considers the competence, integrity and experience of the proposed Senior Managers, how the firm will be governed, and whether its culture and controls will support sound and prudent conduct. Weak or inexperienced Senior Managers are one of the most common reasons applications stall.
That is why the firm’s application and its Senior Manager applications are assessed together. Each proposed Senior Manager needs approval, and the regulator will usually consider those individual applications alongside the firm’s. Our guides to the fitness and proper test and what goes wrong in Form A submissions explain the individual side, and which SMFs apply at which firm tier sets out which roles a firm needs.
How the Regulator Assesses the Conditions
- At application. The firm submits its application with a regulatory business plan, financial projections, policies and details of its controllers, close links and proposed Senior Managers. The regulator tests each condition against this evidence. See the FCA’s guidance on applying for authorisation.
- Through questions and meetings. Case officers often ask detailed follow-up questions and may interview proposed Senior Managers. Answers need to be consistent with the business plan.
- On an ongoing basis. The conditions are continuing obligations. Supervisors can reassess them at any time, for example after a change in strategy, a change of control, rapid growth or a regulatory concern.
- When the firm changes. Variations of permission, changes in control and new Senior Manager appointments all prompt the regulator to look again at whether the conditions are still met.
The Regulatory Business Plan
The regulatory business plan is the document through which a firm shows it meets the threshold conditions, particularly business model and appropriate resources. It typically covers the firm’s products and customers, distribution, revenue model, financial projections and stress scenarios, organisational structure, governance, the compliance and financial crime framework, outsourcing, and wind-down planning. The people section matters: it should show who holds each Senior Manager Function, how much time they give, what support sits beneath them and how the firm will grow its control functions as the business grows. Our guide to the authorisation journey walks through building the team that the plan describes.
Why Applications Stall or Are Withdrawn
- a business plan that is vague, inconsistent or unrealistic about growth and revenue
- proposed Senior Managers without relevant experience, or with too little time for the role
- a compliance officer or MLRO who is strong on one discipline and thin on the other
- weak financial crime controls, particularly for payments and cryptoasset firms
- unclear ownership, controllers or close links that make effective supervision difficult
- outsourcing arrangements with no credible oversight from inside the firm
- inadequate capital, liquidity or wind-down planning
- slow or inconsistent answers to the regulator’s questions
Many of these problems come back to people. Firms that recruit experienced, approvable Senior Managers before they apply, rather than naming someone to fill a gap, give themselves a much better chance. Our SMF authorisation support service helps firms put that team in place.
Scenario: A start-up investment firm applies for Part 4A permission to manage investments and arrange deals for professional clients. Its application names the founder as chief executive and a part-time consultant, one day a month, as compliance officer and MLRO. The case officer questions whether one day a month is appropriate for a firm planning to onboard international clients, and asks about the consultant’s financial crime experience. The firm withdraws, recruits an experienced fractional compliance officer and MLRO for two days a week with relevant investment management experience, updates the business plan and resubmits. The second application progresses.
Variation of Permission
A firm that wants to add, remove or change the regulated activities it carries on must apply for a variation of permission (VoP). Adding activities is assessed against the threshold conditions in the same way as a new application: the regulator will want to see that the firm has the resources, systems, controls and people to carry on the new activity.
A VoP often triggers new Senior Manager needs. Adding client money handling may bring CASS responsibilities; moving into retail business may raise the bar for the compliance function; adding activities that change the firm’s SMCR category may bring new Senior Manager Functions or Prescribed Responsibilities. Firms should plan those appointments alongside the VoP rather than after it. Our guide to becoming an Enhanced firm covers one common example.
Firms can also apply to cancel permission, for example when winding down, and the regulator can vary or cancel a firm’s permission on its own initiative.
What If a Firm Stops Meeting the Conditions?
Because the threshold conditions apply continuously, a firm that falls below them is in a serious position. The regulator has a range of tools, from requiring the firm to address the problem, to imposing requirements or restrictions on its permission, to cancelling permission altogether. Supervisors may also commission a skilled person review. A loss of key people, such as the departure of an MLRO or compliance officer with no successor, can put the appropriate resources condition at risk, which is why urgent replacement and succession planning matter.
Authorisation and the People Behind It
Credible Senior Managers for applications and variations. Every SMF search is led personally by Adrian Lawrence FCA
Authorisation
Building the team for an application.
→ SMF authorisation support → Multi-SMF team buildThe authorisation journey →
Control Functions
The roles regulators test first.
→ Compliance officer and MLRO → Fractional MLROSMF16 and SMF17 explained →
Approval
Getting individuals approved.
→ The fit and proper test → SMCR background checksSMCR glossary →
Every SMF search is led personally by Adrian Lawrence FCA
Frequently Asked Questions
What is Part 4A permission?
It is the permission granted by the FCA or PRA under Part 4A of FSMA to carry on specified regulated activities. It is the main route to becoming an authorised firm.
What are the FCA threshold conditions?
They are the minimum standards in Schedule 6 to FSMA and the COND sourcebook: legal status, location of offices, effective supervision, appropriate resources, suitability and business model.
Do the threshold conditions apply after authorisation?
Yes. Firms must meet them continuously, and the regulator can act if a firm falls below them.
What is a variation of permission?
An application to add, remove or change the regulated activities in a firm’s permission. Adding activities is assessed against the threshold conditions and often needs new or different Senior Managers.
Do payment and e-money firms need Part 4A permission?
Generally not for payment services and e-money issuance, which are authorised under their own regulations, but some firms carry on FSMA activities as well. Check your position with the FCA’s guidance.
About the Author
Adrian Lawrence FCA is the founder of SMF Capital. He is a Chartered Accountant and Fellow of the ICAEW, holds a practising certificate in his own name, and is a former listed-company Finance Director with a BSc from Queen Mary College, University of London. He founded FD Capital in 2018 and has since built a network of five specialist recruitment practices. He leads every SMF Capital search personally. View Adrian’s ICAEW profile.
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