🇬🇧UK FCA Investment Firm: Part 4A, IFPR, CASS and SMCR

Concept

A UK investment firm is a company holding an FCA permission under Part 4A of FSMA (Part 4A permission) for investment activities: executing client orders, arranging deals, managing portfolios, giving investment advice and safeguarding client assets. The permission is needed because the law reserves these activities to authorised persons: carrying them on without one breaches the general prohibition and is a criminal offence punishable by up to two years' imprisonment under s.23 FSMA.

The UK model differs from the familiar numbered "licence" of a given type. The FCA grants a set of permissions, each describing a specific activity, type of instrument and category of client, and it may attach limitations and requirements to the set. Everything else follows from that set: how much capital the firm holds, whether the client asset rules apply, how many managers the regulator must approve in advance and what compensation clients can expect.

Since 1 January 2022 UK investment firms have operated under their own prudential regime, the Investment Firms Prudential Regime (IFPR), set out in the MIFIDPRU sourcebook of the FCA Handbook. It grew out of the EU IFR/IFD but has developed separately since Brexit, and a UK firm no longer gains access to the EU market.

Three features shape how founders use the regime.

The limits are built into the same structure. Senior managers answer to the FCA personally under SMCR. The route to a permission is slow: in the first quarter of 2026 half of new retail investment firms waited more than 241 days for a decision. There is no EU passport. For those not ready to seek authorisation themselves there is the appointed representative model, working under another firm's permission, which the FCA tightened markedly from 2022.

Key parameters

Eight parameters on which the regime is compared with other financial licences:

The main inference from the table: the application fee is the cheapest part of entry. Capital, staff and the CASS audit fall on the firm while it waits for a decision and every year after. How the UK regime compares with European and Asian ones is shown in the financial licences hub.

Perimeter: what the FCA actually permits

The list of regulated activities is set by the Regulated Activities Order 2001 (RAO). Six articles matter for an investment business: the application lists those the firm will actually carry on, with the instruments and clients concerned.

Choosing rows in this table is the first decision, and every later one depends on it. A permission to deal on own account takes the firm out of the small-firm class and lifts the permanent minimum to £750,000; a permission to hold client money brings in the CASS rules and a £150,000 minimum. Firms therefore often start with a narrow set and extend it through a variation of permission, which the FCA handled with a median of 50 days for wholesale firms in the first quarter of 2026.

Capital after IFPR: SNI and non-SNI

IFPR splits investment firms into two classes. A small and non-interconnected firm (SNI) holds capital under a simplified formula; the others (non-SNI) use the full formula with K-factors. The class is set by quantitative criteria, and breaching any one of them makes a firm non-SNI.

Permanent minimum

The floor for own funds depends only on the firm's permissions. The levels are set by the table in MIFIDPRU 4.4.1R as in force from 6 April 2026; where several rows apply, the highest minimum applies.

An adviser or manager that never touches client money fits the lowest level. The same firm, once permitted to hold client money, moves straight to £150,000.

Fixed overheads requirement and K-factors

The permanent minimum is only a floor. An SNI firm's own funds requirement is the higher of the minimum and the fixed overheads requirement (FOR), which equals one quarter of the firm's relevant expenditure in the preceding year according to its latest annual accounts. For a non-SNI firm a third amount is added, the K-factor requirement, and the highest of the three applies.

For a firm with meaningful costs, the FOR quickly overtakes the minimum. An advisory firm with £1 million of relevant expenditure a year must hold at least £250,000 of own funds, although its permanent minimum is £75,000. On top of own funds there is a liquidity requirement: at least one third of the FOR in liquid assets.

K-factors measure the risk a firm poses to clients, to the market and to itself: assets under management, client order flow, client money and assets held, own-account trading. The method and its comparison with the EU IFR are covered in the article on regulatory capital.

Where SNI ends

The SNI criteria are quantitative thresholds published by the FCA in PS21/9:

The row of zeros matters most. A firm that holds client money or assets cannot be an SNI; a permission to deal on own account makes a firm non-SNI by itself (MIFIDPRU 1.2.1R(5)). The classification thus mirrors the choice of permissions in the previous section.

On top of the formulas every firm runs an ICARA, an internal assessment of capital and liquidity adequacy with a plan for orderly wind-down. It is reviewed at least once every 12 months and after any material change in the business model (MIFIDPRU 7.8.2R).

The regime keeps changing. In CP26/27 (July 2026) the FCA proposes taking SNI firms out of the remuneration requirements; it expects final rules in the first quarter of 2027. A new AIFM regime for alternative fund managers is being prepared under CP26/28.

Client money and assets: CASS

The Client Assets sourcebook (CASS) separates clients' money and instruments from the firm's own property. Segregated client assets stay outside the pool available to the firm's creditors; how this works in practice is shown in the article on licence withdrawal and wind-down.

Supervisory intensity depends on scale. Every year the FCA sorts firms into three CASS categories:

Medium and large firms file a monthly Client Money and Asset Return (CMAR) and appoint a director or senior manager responsible for CASS. Small firms are exempt from the CMAR but not from the main control tool.

That tool is the auditor's client assets report under SUP 3.10, known as the CASS audit. The auditor gives reasonable assurance where the firm holds client money or assets and limited assurance where it does not. The report covers a period of no more than 53 weeks and reaches the FCA within four months of its end.

FSCS: what is protected and how much

If segregation fails and the firm cannot return assets, clients turn to the Financial Services Compensation Scheme. At the end of 2025 the FSCS limits diverged: the deposit limit rose while the investment limit stayed the same.

An investment firm's client is protected by the first row. The FSCS pays claims against a failed firm; it does not cover a fall in the market value of investments. The comparison with European schemes is in the client asset protection map.

People: SMCR

The Senior Managers and Certification Regime (SMCR) makes responsibility personal. The regulator wants to know who exactly answers for each critical function, and it has three tools for that.

The scope of the requirements depends on the firm's category: limited scope, core or enhanced. Most small investment firms fall into core, the baseline.

Approval of a senior manager is a separate procedure on top of the firm's authorisation, with its own timing:

How the regulator assesses the reputation and competence of managers and owners is covered in the article on qualifying holdings and fit and proper.

SMCR is being reformed. The first phase is set out in PS26/6 of April 2026: most changes took effect on 24 April 2026 and concern criminal record checks, the 12-week rule, certification, regulatory references and the thresholds for enhanced firms; the rest took effect on 10 July, 30 July and 1 September 2026. The second phase depends on legislative changes by the Treasury; the FCA expects to consult on it later in 2026.

Owners: control under Part XII

A change of owner of a regulated firm needs FCA approval before the deal. Under s.178 FSMA a person who decides to acquire or increase control must give the regulator written notice in advance. Control arises from 10% of the shares or voting power in the firm or its parent, or from the ability to exercise significant influence over management (s.181).

Assessment periods are set by statute, actual timings by FCA statistics:

Buying an existing firm goes through the same control; details are in the article on change of control.

Consumer Duty

Firms dealing with retail customers have been subject to the Consumer Duty, Principle 12 and its four outcomes, since 31 July 2023. For closed products the rules have applied since 31 July 2024.

For an investment firm the Consumer Duty changes the logic of supervision. The regulator tests the outcome for the customer: clear communications, fair price relative to the product's value, a product matched to its target market. Formal compliance with individual disclosure rules is no longer enough.

The Duty's scope may narrow. In CP26/23 the FCA proposes applying it to retail customers usually resident in the UK; the consultation closed on 18 September 2026 and final rules are expected in the first quarter of 2027.

Path to a permission

A permission goes to a firm that meets the threshold conditions in Schedule 6 FSMA. The FCA calls them minimum standards to be met at all times, before and after authorisation. For a firm not supervised by the PRA there are five:

The head office condition sets the UK substance standard: the firm's head office cannot be abroad. The FCA describes the procedure as follows:

1. The firm registers on the Connect system and submits the forms, a regulatory business plan and the fee.
2. An application is complete only when the FCA has all the information it requested; the six-month period runs from then.
3. The authorisation team assesses whether the firm is ready to comply from day one; senior manager applications are considered in parallel.
4. The FCA issues a written notice stating the date from which the permission has effect (s.55V(5)–(6)).

Timing and cost of entry

Under s.55V FSMA the FCA must determine a complete application within six months and an incomplete one within 12 months of receipt. The government proposed cutting these periods to 4 and 10 months, the FCA reports against them as targets, and in May 2026 the Treasury confirmed that it will legislate for them when parliamentary time allows.

The latest results against the new targets, for January–March 2026, are in the FCA's authorisation metrics for Q4 2025/26:

Retail investment firms are the slowest category in these metrics. The overall figure looks better thanks to other sectors: credit brokers with limited permission had a median of 124 days. The median retail investment firm gets its decision after about eight months, and fewer than 60% of such cases met the FCA's target.

The application fee is modest against this background. The FCA sorts applications into complexity categories:

The main costs are capital, staff and the annual CASS audit.

Entry under another firm's permission: appointed representative and hosting

An appointed representative (AR) works without its own permission, under the permission of a principal firm. The principal accepts responsibility for its activities in writing and, under s.39(3) FSMA, is responsible for it as if it had expressly permitted everything. The exemption covers only the business listed in reg 2 of the Appointed Representatives Regulations 2001:

Where the principal is an investment firm, the representative must be entered on the register as a tied agent (s.39(1A)).

An AR is therefore an entry route for an adviser or introducer and does not replace a brokerage or management permission. Fund managers can use AIFM hosting. The mechanics, costs and providers of both models are in the article on UK regulatory hosting; the general logic of working under someone else's permission is in the article on licence for rent.

Since 8 December 2022 the rules in PS22/11 have applied: a principal notifies the FCA 30 calendar days before appointing a new AR, reviews each AR annually and self-assesses its own oversight. The next step is legislative: the Treasury ran a consultation on the AR regime from 12 February to 9 April 2026, and no outcome had been published by the end of September 2026.

After Brexit: no passport

The link between the UK and EU markets was cut in two stages; the timeline is confirmed on the FCA page on the temporary regime:

Firms that did not obtain authorisation moved into run-off and may not write new business.

The relationship is symmetrical: a UK permission does not open the EU market. Groups that need both markets build two firms, a UK one under the FCA and an EU MiFID II investment firm, for example in Cyprus or Bulgaria. Other regimes are compared in the financial licences hub.

Russian beneficial owners

The criteria for assessing a controller in s.186 FSMA do not mention nationality: the FCA assesses the reputation of the acquirer and future managers, its financial soundness, the firm's ability to meet prudential requirements and whether there are grounds to suspect money laundering. What decides the outcome is the sanctions status of the individuals concerned and the source of funds.

The sanctions regime is the Russia (Sanctions) (EU Exit) Regulations 2019. Three of its provisions bear directly on an investment firm:

• reg 7: a company is owned or controlled by a person who holds more than 50% of the shares or votes, has the right to appoint a majority of the board, or can reasonably be expected to have the company's affairs conducted in accordance with their wishes; through this test the asset freeze on a designated person extends to their companies;
• reg 16: a ban on dealing in transferable securities and money-market instruments: those with a maturity over 30 days issued after 1 August or 12 September 2014 by persons listed in Schedule 2 and their subsidiaries, and, since 1 March 2022, any such instruments issued by persons connected with Russia and entities they own;
• reg 54C: a ban on providing accounting, auditing, consulting, IT consultancy, advertising and several other professional services to persons connected with Russia.

On the FCA's side the ordinary control procedure under Part XII applies, with a s.178 notice before the deal. The practice of sanctions screening at a financial operator is covered separately.

Risks and limitations

Popular but ends badly

A popular entry route is an AR under a "rented" principal that takes a fee and does not in fact supervise the representative. The data the FCA relied on in PS22/11 show the scale of the problem: in 2018 and the first half of 2019 principals and their ARs accounted for 61% of the value of FSCS claims, £1.1 billion in total. Principals generated 50% to 400% more supervisory cases and complaints than firms without ARs.

After the House of Commons Treasury Committee report on Greensill, the FCA tightened the rules: a principal, already responsible for its ARs under s.39(3) FSMA, must review each representative annually and notify the FCA of a new AR 30 days in advance. For the representative this means dependence on the principal's decisions: the agreement can be terminated after the annual review.

The second typical mistake is a £75,000 firm that starts holding client money. That takes it outside its permissions and requires £150,000 of capital, the CASS rules and a reasonable-assurance CASS audit; it can only be fixed through a variation of permission that should have been obtained in advance.