Firms seeking to conduct discretionary management or advisory activity for professional clients in the UK typically face a practical choice: operate under a regulatory host or apply for direct authorisation from the FCA. Both routes provide access to the regulatory perimeter, but they differ in time-to-market, cost, control, and the allocation of regulatory responsibility.
This decision also sits in a shifting policy context. Since the Financial Services and Markets Act 2023, the FCA has a secondary objective to facilitate, subject to relevant international standards, the international competitiveness of the UK economy and its growth in the medium to long term. Government policy has increasingly emphasised that the UK should be ‘open for business’: lowering unnecessary barriers to entry and improving predictability, while maintaining strong ‘guardrails’ at the regulatory gateway.
In this article, we draw on our 20+ years of experience of operating and working with regulatory hosting platforms and project managing FCA applications to highlight the differences between the two models in the context of the current overall policy framework.
The two routes
Regulatory hosting is a model where a new entrant can conduct regulated activities by leveraging the FCA permissions of an authorised principal firm. Either the firm becomes an appointed representative of the principal and/or individuals from the firm are seconded into the principal to conduct activities such as discretionary portfolio management. The principal is responsible for the firm’s regulated activities within the scope of the appointment. The firm can therefore access the UK market under the principal’s permissions, subject to onboarding due diligence and ongoing oversight.
Direct authorisation is the route where the firm applies to the FCA for its own permissions. Once authorised, the firm operates under its own regulatory permissions and bears direct responsibility for meeting the FCA’s threshold conditions and ongoing obligations.
Key considerations
1. Time-to-market and predictability
Regulatory hosting can be faster. Where the principal’s onboarding and approvals proceed smoothly, a firm can often become operational within a couple of months, which may be commercially decisive when strategy execution and client onboarding are time-sensitive.
However, speed is not automatic. It depends on the principal’s risk appetite, the fit with existing permissions, and the depth of due diligence required. As the regulatory hosting regime continues to tighten, principals are expected to evidence robust onboarding, monitoring, and intervention processes, which may extend timelines for some models.
Direct authorisation provides a clearer end-state and autonomy once achieved, but it is typically slower and more resource intensive upfront. That said, the FCA has publicly committed to faster and more predictable authorisations targets to support UK growth and competitiveness, while maintaining a robust gateway.
The FCA’s approval process involves a rigorous review of governance structures, financial resources, compliance frameworks and key personnel in order to ensure the firm satisfies the FCA threshold conditions.
2. Capital, prudential requirements, and balance-sheet efficiency
Directly authorised firms must meet applicable prudential requirements and support those requirements with ongoing governance, reporting, and planning. For early-stage entrants, this can mean tying up capital and senior time before revenue is established.
By contrast, under the regulatory hosting model, firms are typically not directly subject to the same prudential framework as authorised firms because the principal holds permissions and related obligations. This can improve capital efficiency at launch, freeing up resources for business development, investment strategy, or client engagement rather than regulatory buffers.
3. Governance, compliance infrastructure, and operational burden
The regulatory hosting model commonly provides access to a structured compliance framework – including policies, marketing review, monitoring, and training – reducing the need to build everything from day one. The principal is also responsible for FCA regulatory filings. For lean teams, this can meaningfully reduce execution risk.
A potential downside is reduced independence. Firms must work within the principal’s governance model and oversight cadence. Where controls are heavy, product and client onboarding can become operationally constrained.
Direct authorisation provides maximum control over governance and systems design, which can be strategically important for firms with mature global controls. But the firm must fund and maintain that capability, including accountable senior roles, internal controls, and documentation that meets the FCA’s expectations.
This includes a requirement to appoint a compliance officer and a money laundering reporting officer. Smaller firms often face challenges as these are not full-time roles. Oftentimes, these tasks are assigned to a senior individual that also performs other tasks, with a regulatory expectation that conflicts between the respective functions are appropriately managed.
4. Commercial flexibility and strategic optionality
Firms use hosting as either a permanent model or a stepping stone: entering quickly into a regulatory hosting arrangement, then transitioning to direct authorisation once scale, investor requirements, or strategic direction justify the additional cost and autonomy.
That transition is not frictionless. Moving from regulatory hosting to authorised status typically requires upgraded governance, resourcing, regulatory reporting capability, and careful client/contract migration planning. However, this is a well-trodden path and applicant firms often benefit – in terms of timeframe and nature of FCA questioning – from having already commenced investment activity under a regulatory host.
5. Investor and counterparty perception
Investor and counterparty expectations vary. Some institutional investors historically preferred counterparties holding full FCA authorisation as a signal of maturity and permanence. However, familiarity with the regulatory hosting model – both within and outside of the UK – has increased, particularly where the principal can demonstrate robust oversight and institutional-grade controls.
In practice, the commercial question is whether a firm’s target investor base or distribution strategy treats direct authorisation as a gating criterion, or whether well-governed hosting is sufficient.
Practical decision cues
The regulatory hosting route may suit firms that:
- Need a rapid route to market and want to minimise the pre-revenue period.
- Prefer to leverage a mature compliance framework early on, rather than building from scratch.
- Fit comfortably within a principal’s existing permissions and risk appetite.
Direct FCA authorisation may suit firms that:
- Require maximum operational autonomy or a bespoke permission set.
- Have investor or counterparty expectations that favour a standalone authorised entity.
- Are ready to invest in governance, systems, and documentation required to meet the FCA’s threshold conditions and ongoing obligations.
Recent developments and direction of travel
A. Hosting platforms / Appointed Representatives: strengthening the guardrails
Government and regulator focus has increasingly been on preserving the benefits of the regulatory hosting regime – market entry, proportionality and innovation – while strengthening structural safeguards. In February 2026, HM Treasury published a consultation on targeted legislative reforms intended to shore up confidence in the Appointed Representative regime, including proposals that would require authorised firms to obtain FCA permission before acting as a principal.
Alongside legislative proposals, the FCA continues to communicate supervisory expectations for principals, including around Appointed Representatives that appear not to be performing regulated activities for periods of time. This focus reflects concerns about consumer confusion and the ‘halo effect’ of register status, and underscores expectations for data-led oversight and timely intervention where appropriate.
B. Direct authorisation: easing entry while maintaining a robust gateway
The government and FCA have also advanced initiatives intended to reduce unnecessary friction in direct authorisation which is consistent with an ‘open for business’ agenda, while maintaining strong entry standards.
First, HM Treasury has set out plans for a ‘provisional licences’ authorisation regime for early-stage firms. The aim is to allow the FCA to grant time-limited permissions so firms can get ‘up and running’ in a controlled environment with strong regulatory oversight while working towards full authorisation.
Second, the FCA has announced faster targets for authorisations and related applications, explicitly linking speed improvements to UK growth and competitiveness while committing to maintain high standards at the gateway.
Conclusion: easier entry, stronger guardrails
Viewed through the lens of the FCA’s secondary objective on competitiveness and growth, the trend is not to ‘pick a winner’ between hosting and authorisation. Rather, the direction of travel is to improve the UK’s accessibility for new entrants while tightening oversight where risks have crystallised. In practical terms, hosting remains a powerful accelerator where the model fits a principal’s permissions and controls; direct authorisation is becoming more predictable and may, over time, be complemented by a ‘provisional licence’ pathway for early-stage firms.
Matt Raver of RQC Group, together with Ant Bennett of Capricorn Fund Managers, will be exploring this further at their co‑hosted Breakout Session ‘Entering the Market: Regulatory Hosting and the FCA Authorisation Journey’ at the AIMA Next Generation Managers Forum 2026 on 19th May.
They would be delighted if you could join them and hope to see you there. If you can’t make it but would welcome a conversation, please reach out to us.
Selected public sources (for further reading)
- FCA: Our secondary objective
- FCA: Sets faster targets for authorisations
- FCA: Managing potential risks from inactive appointed representatives
- FCA: Asset management: improving applications for authorisation
- HM Treasury: Consultation – The Appointed Representatives Regime (Feb 2026)
- HM Treasury: Creating a Provisional Licences Authorisation Regime (Dec 2025)
