FCA Authorisation for Investment Firms: Permissions, Capital and the Application Process

Which investment activities need authorisation

The starting point is the Regulated Activities Order 2001. It lists the specified activities that, when carried on by way of business in relation to specified investments, require a person to be authorised or exempt. Four of these activities capture the core of what most investment firms do, and a firm will usually need several of them combined into a single permission.

Arranging deals in investments (Article 25) covers making arrangements for another person to buy, sell, subscribe for or underwrite an investment. Managing investments (Article 37) covers managing assets belonging to another person where discretion is exercised and those assets include securities or contractually based investments. Advising on investments (Article 53) covers giving a person advice on the merits of buying, selling, subscribing for or underwriting a particular investment. Dealing in investments as principal (Article 14) covers buying, selling, subscribing for or underwriting securities or contractually based investments as principal.

You must map every part of your intended business to a specific regulated activity and specified investment. The permission you apply for is the sum of those activities, so getting this mapping right is the foundation of the whole application. If you plan to hold client money or client assets, that changes the permissions you need and the capital you must hold.

MiFID and non-MiFID firms

Whether your firm is a MiFID investment firm matters a great deal, because it determines which prudential regime applies. The Markets in Financial Instruments framework, retained in UK law, sets out a category of investment firm that provides investment services in financial instruments. Firms in that category fall within the IFPR and the MIFIDPRU sourcebook.

Some firms sit outside the full MiFID scope. Many financial advisers who do not hold client assets or money and do not do cross-border business are treated as exempt under Article 3 of MiFID. The FCA describes these as Article 3 firms or MiFID optional exemption firms. They are subject to a range of conduct and organisational requirements derived from MiFID, including the suitability rules, but they are not MiFID investment firms for prudential purposes and the IFPR does not apply to them in the same way.

Getting your MiFID classification right early is important. It drives your capital calculation, your reporting forms, and the supplement you complete during the application. If you are unsure whether a particular service brings you within MiFID scope, this is a point to resolve with advice before you submit, not afterwards.

The IFPR and base own funds requirements

The Investment Firms Prudential Regime applies to FCA-authorised MiFID investment firms and came into force on 1 January 2022. It replaced the older bank-derived capital rules with a regime built around the harm an investment firm can cause to clients and markets. The detail lives in the MIFIDPRU sourcebook.

Every MIFIDPRU investment firm must hold a permanent minimum capital requirement, which is a floor that never falls away regardless of the size of the business. There are three base classes. The £75,000 class applies to firms whose only permitted investment services are limited activities and which are not permitted to hold client money or client assets. The £150,000 class applies to a further band of firms. The £750,000 class applies where a firm has permission for activities such as dealing on its own account, underwriting or placing on a firm commitment basis, or operating an organised trading facility.

The permanent minimum is only a floor. The overall own funds requirement is the higher of that floor, a fixed overheads requirement, and, for larger firms, a K-factor requirement. The fixed overheads requirement is broadly one quarter of a firm's relevant expenditure during the preceding year. Whether the K-factor requirement applies depends on whether you are a small and non-interconnected firm, which the next section explains.

SNI firms, non-SNI firms and the ICARA process

MIFIDPRU splits firms into two groups. A small and non-interconnected firm, known as an SNI firm, faces a lighter set of requirements. For an SNI firm, the own funds requirement is the higher of the permanent minimum capital requirement and the fixed overheads requirement. An SNI firm is not subject to the K-factor requirement. A firm that is not an SNI firm, a non-SNI firm, must instead take the higher of the permanent minimum, the fixed overheads requirement and the K-factor requirement.

Sitting across both categories is the internal capital adequacy and risk assessment process, the ICARA. Every firm in scope of the IFPR must run this process. Through the ICARA a firm identifies the risks of harm in its operations and produces a reasonable estimate of the own funds and liquid assets it needs to hold, both to operate as a going concern and to wind down in an orderly way. The ICARA brings together business model analysis, stress testing, wind-down planning and recovery planning into a single assessment.

The ICARA is not a one-off document you file and forget. Firms must review it, keep it current and be ready to demonstrate that their financial resources remain adequate. For a new applicant, a credible ICARA and a realistic capital plan are part of showing the FCA that the business is viable and that consumers are protected if things go wrong.

How the FCA application works

You apply through the FCA's Connect system. The centre of the application is your regulatory business plan, which must set out exactly what your firm will do, the permissions you are requesting and how your activities map to them. Generic descriptions are not enough. The FCA also expects financial forecasts, details of your people and systems, and evidence that you can meet the threshold conditions, which are the regulator's minimum standards for authorised firms.

The FCA's overarching test is whether the firm is ready, willing and organised. Ready means your documents are final and thoroughly reviewed rather than drafts. Willing means you respond promptly and openly to questions. Organised means you have the arrangements and controls in place to comply from your first day of authorisation. Applications that arrive with vague plans or missing documents take far longer, and the FCA can reject a submission that does not contain the minimum information required.

There are statutory deadlines. Under section 55V of the Financial Services and Markets Act 2000, the FCA has six months to determine a complete application from the date it is received. If the application is incomplete, meaning required information or a document has not been provided, the regulator has up to twelve months from initial receipt to decide. In practice the FCA usually asks follow-up questions, so building time for that dialogue into your plan is sensible. There is an application fee, payable on submission, and a pre-application support service exists for firms considering consumer investment activities. Because the FCA will not review draft documents and can refuse an incomplete pack, submitting a finished, internally signed-off application is the single biggest factor in a smooth outcome.

Getting authorisation right first time

The most common reason applications stall is a business plan that is too thin or misaligned with the permissions requested. Because the FCA assesses whether you can operate compliantly from day one, your governance, compliance monitoring, financial resources and client asset arrangements all need to be real and documented at the point of application, not aspirations for later.

Investment firm authorisation rewards preparation. A clear permission map, an honest capital calculation under MIFIDPRU, a workable ICARA and a detailed regulatory business plan will move your application through the six-month statutory window far more smoothly than a rushed submission. If you want structured support building that pack, our authorisation service is designed around exactly these requirements, and once you are live our ongoing compliance tools help you keep meeting the threshold conditions.

Conclusion

FCA authorisation for an investment firm is not a single form but a demonstration. You are showing the regulator that your activities are correctly permissioned under the Regulated Activities Order, that you understand whether you are a MiFID firm, that you hold the right capital under the IFPR, and that you can protect clients from your first day of trading. The base own funds classes of £75,000, £150,000 and £750,000 are floors, and your real requirement will often be driven by your fixed overheads or, for larger firms, your K-factor calculation.

Treat the application as the moment your operating model becomes concrete. Get your permission map, capital plan and ICARA right, write a business plan the FCA can actually assess, and be ready to answer questions inside the statutory timeframe. Firms that do this move through authorisation with fewer surprises and start life on the register in good standing.

Frequently asked questions