Consequences of carrying on regulated financial business without FCA authorisation

The criminal offence under section 23

Section 23 of FSMA makes it a criminal offence to breach the general prohibition. The offence is triable either way. On conviction on indictment in the Crown Court, the maximum sentence is two years' imprisonment, an unlimited fine, or both. On summary conviction in the magistrates' court in England and Wales, the maximum is six months' imprisonment, a fine not exceeding level 5 on the standard scale, or both. Scotland and Northern Ireland have their own equivalent summary thresholds.

Section 23(3) provides a statutory defence. It is a defence for the accused to show that they took all reasonable precautions and exercised all due diligence to avoid committing the offence. In practice, this means you must be able to evidence the steps you took to check the perimeter of regulation: legal advice, written records of your scoping work, and a documented decision trail. A vague belief that you were outside the perimeter is not enough.

Civil unenforceability and customer redress

Section 26 of FSMA makes any agreement entered into by a person carrying on a regulated activity in breach of the general prohibition unenforceable against the other party. Your customer can walk away from the contract. Section 28 then allows the customer to recover any money or property they transferred under the agreement, plus compensation for loss. The court may permit enforcement only if it is satisfied it is just and equitable in all the circumstances.

The strategic point is that civil unenforceability bites regardless of whether the FCA prosecutes. A single disgruntled customer can unwind their contract and claim restitution. If you have a book of unauthorised business, the contingent liability covers every customer in that book and survives a change of ownership. This often surfaces in due diligence on a sale or investment round and can collapse the transaction.

FCA regulatory enforcement powers

Beyond criminal prosecution, the FCA has a graduated set of civil and regulatory tools:

• Public censure. The FCA can publish a statement that a person has breached the general prohibition. This is reputationally severe and discoverable in perpetuity.
• Financial penalty under section 206. Although section 206 is most commonly used against authorised firms, the FCA can impose financial penalties for misconduct linked to unauthorised activity in conjunction with other powers.
• Restitution under section 380 and section 384. The FCA can apply to the court, or order directly, that the firm pays back profits made or losses caused by the unauthorised activity to affected customers.
• Injunctions under section 380. The court can restrain a person from continuing or repeating the breach and require steps to remedy it.
• Asset freezing under section 381. Where there is a risk that customer money will dissipate, the FCA can obtain a freezing order over the firm's and connected persons' assets.

Consequences for directors and senior managers

Personal consequences sit alongside firm-level consequences. Under section 56 of FSMA, the FCA can make a prohibition order against an individual it considers not fit and proper, barring them from working in regulated financial services in any role covered by the order. The bar can be permanent.

The Company Directors Disqualification Act 1986 is the second lever. Conduct that makes a director unfit to be concerned in the management of a company — which knowingly running unauthorised financial services typically does — can result in a disqualification order of up to 15 years. Disqualified directors cannot act as a director, take part in the formation or management of a company, or act as an insolvency practitioner during the disqualification period. Breach of a disqualification order is itself a criminal offence.

Why this sits alongside the perimeter question

Authorisation is expensive and slow. Founders sometimes treat it as something to do later, after product-market fit. The consequence stack above is the reason that calculation usually fails. Civil unenforceability creates a contingent liability on every customer contract you sign. A criminal conviction or FCA prohibition forecloses your career in financial services. Asset freezing during an investigation halts trading regardless of whether you are eventually convicted. The cost of authorisation is bounded; the cost of getting the perimeter wrong is not.

The right pairing for this guide is Do you need FCA authorisation. Read the two together before you commit to a route to market.