Meet FCA threshold conditions for authorisation

The five FCA threshold conditions

For FCA-only regulated firms (those not also requiring PRA authorisation), Schedule 6 Part 1B sets out five conditions you must satisfy. Each condition has specific assessment criteria the FCA uses to determine compliance.

Condition 1 - Location of offices

Your head office must be in the United Kingdom. If your firm is UK-incorporated, your registered office must also be in the UK.

What the FCA actually assesses:

• Mind and management test: Where are strategic decisions actually made? A UK registered address is not enough if key decisions are taken overseas.
• Central control: Day-to-day management and oversight must be genuinely based in the UK.
• Board meetings: Where does the governing body typically meet to make decisions?

A "brass plate" arrangement - where you have a UK address but decisions are made elsewhere - will not satisfy this condition.

Condition 2 - Effective supervision

The FCA must be capable of effectively supervising your firm. This means the FCA needs to be able to understand your business, access information, and take action if needed.

Factors the FCA considers:

• Group structure: Complex structures with multiple entities, especially overseas parents, make supervision harder. Can the FCA understand who controls the firm and how decisions flow?
• Overseas connections: If your firm has significant links to overseas entities or regulators, how will this affect FCA supervision?
• Outsourcing: Heavy reliance on third parties, especially overseas providers, can create supervision challenges.
• Nature of activities: Some regulated activities are inherently harder to supervise than others.
• Information access: Can the FCA get the information it needs to supervise you?

If your corporate structure is complex, be prepared to explain why it does not prevent effective FCA oversight.

Condition 3 - Appropriate resources

You must have resources appropriate to the regulated activities you want to carry on. The FCA assesses both financial and non-financial resources.

Financial resources:

• Regulatory capital: You must meet minimum capital requirements for your firm type (varies by activity).
• Liquidity: Can you meet obligations as they fall due?
• Financial projections: 3-year forecasts showing you can maintain capital adequacy throughout.
• Stress testing: What happens to your capital position under adverse scenarios?

Non-financial resources:

• IT systems: Appropriate technology for your business model, including cyber security.
• Compliance framework: Policies, procedures, and monitoring for regulatory compliance.
• Risk management: Systems to identify, assess, and manage business risks.
• Competent personnel: Staff with appropriate skills, knowledge, and experience.
• Governance: Clear lines of responsibility and accountability.

Condition 4 - Suitability (fit and proper)

Your firm must be a "fit and proper person" to carry on the regulated activities you are applying for. This involves assessment of both the firm itself and key individuals.

Individual assessment (controllers and senior managers):

• Competence: Do they have the skills and experience for their role?
• Integrity: Are they honest and of good repute?
• Financial soundness: Do they have unsatisfied judgments or unmanaged debts?
• Regulatory history: Have they been sanctioned, refused authorisation, or subject to enforcement action?
• Criminal convictions: Relevant convictions, especially for dishonesty or financial crime.

Firm assessment:

• Conduct history: Previous regulatory issues or complaints.
• Business practices: Does your approach demonstrate sound conduct principles?
• Financial crime prevention: Do you have adequate AML and fraud prevention measures?

Condition 5 - Business model

Your business model must be suitable for carrying on the regulated activities you are seeking permission for. This condition was added in 2013 and reflects lessons from the financial crisis.

What the FCA assesses:

• Sustainability: Is your business model economically viable in the medium term?
• Consumer protection: Does your model protect consumers' interests, or does it create risks of harm?
• Financial system integrity: Could your business model create risks to the wider financial system?
• Risk understanding: Do you understand the risks inherent in your business model?
• Competitive advantage: What gives you confidence your business will succeed?
• Profitability path: When and how will you become profitable?

The FCA is not looking for guaranteed success - it wants to see that you understand your business, its risks, and have a realistic plan.

Why applications are refused

Understanding common refusal reasons helps you prepare a stronger application. The FCA will refuse your application if any threshold condition is not met.

Application timeline

FCA authorisation takes time. Plan your application well in advance of when you want to start operating.

Ongoing compliance - threshold conditions never stop

Authorisation is not the end of threshold conditions - it is the beginning of an ongoing obligation to maintain compliance throughout your authorisation.

What happens if you stop meeting threshold conditions

If the FCA believes you are failing, or are likely to fail, to meet threshold conditions, it has significant powers to intervene.

FCA powers under FSMA:

• Section 55J - Variation of permission: FCA can add requirements or restrictions to your permissions.
• Section 55K - Cancellation of permission: FCA can withdraw your Part 4A permissions entirely.
• Own-initiative action: FCA can act on its own initiative without waiting for you to notify them.
• Prohibition orders: Individuals can be prohibited from working in regulated financial services.

What typically happens:

• FCA identifies concerns through supervision, returns, or complaints.
• FCA engages with you to understand the situation.
• You are given opportunity to remediate unless there is immediate risk.
• If remediation fails or is refused, formal enforcement action follows.

The best approach is proactive self-assessment and early notification to the FCA if you identify potential threshold condition issues.