UK announces joint PRA/FCA Scale-Up Unit to boost growth of financial services innovators

Overview: the wider pro-growth context

Following the success of the New Bank Start Up Unit (established in 2016), the Scale-Up Unit is intended to provide support to firms that have outgrown their initial phase, yet struggle with the complexity of regulations when launching new products and need greater certainty especially around their capital requirements to support discussions with potential investors as part of the next phase of their growth.

Seen in the wider context of regulatory developments such as the creation of the Small Domestic Deposit Takers regime and changes to MREL requirements, streamlining Solvency UK and the matching adjustment for insurers, this is further progress in striking a balance between the need for a robust prudential regime and supporting and encouraging market entrants (and therefore competition) with more proportionate regulatory requirements.

Much of this chimes with the “Think Challenger” recommendations made in the joint Innovate Finance Hogan Lovells 2023 report, which encouraged the regulators to consider the impact on smaller challenger firms as part of their supervision and regulation of financial services. Together with Innovate Finance, we recently published a further policy paper which you can read here.

What?

The Scale-Up Unit will not replace existing supervision teams or lower regulatory processes; rather, it is designed to complement the current framework where this overlaps with a firm's scale-up needs.

The PRA and FCA are also clear that engagement with the Scale Up Unit is not an endorsement of products or services, and participation will not guarantee a successful outcome for the firm discussing its scale-up plans.

In terms of banks, building societies and insurers, the primary focus will be on:

• Out-of-cycle capital reviews for firms that are rapidly growing, or whose business models have changed significantly;
• Identification of regulatory processes relevant to their scaling-up plans and co-ordinating regulator interactions ahead of, and during the process of, formal submission, for example on variation of permission (VoP) applications;
• Early-stage discussion on product innovation plans and the corresponding regulatory treatment;
• The impact of new policy proposals on scale-up firms; and
• Ongoing dialogue between regulators, firms and the wider scale-up eco-system.

Who?

The service is expected to be of particular interest to firms with a balance sheet in the range of £3bn to £20bn.

To be eligible, banks/building societies must:

• have been operating for at least five years;
• be in a period of sustained growth (e.g. income growth of at least 20% over a three-year period) that they want to sustain; and
• have a genuine need for support from the regulators to scale up and are not already of the size and scale where accessing these resources via other channels would be feasible.

The FCA will seek to provide a dedicated point of contact for firms in the cohort in due course.

For insurers, the service is aimed at dual regulated category 3 and 4 insurers who:

• are in, or about to enter, a period of sustained growth – where you have for several years and are continuing to, or are about to start to, grow at a rate which is demonstrably above the growth rate of your market for a sustained period of time; or
• are looking to scale up a specific product or service that is genuinely innovative – where it is significantly different or there are few or no comparable products already in the market;
• are ready to do so – you have made a good faith effort to research and understand how the rules apply to your business model and now have a specific issue you are seeking help with; and
• have a genuine need for support from the regulators to scale up and are not already of the size and scale where accessing these resources via other channels would be feasible.

For all applicants, the FCA and PRA will consider (i) the size and complexity of the firm’s activities; and (ii) the extent of its available financial and non-financial resources or its ability to access support from third parties.

What does this mean?

The PRA places the launch of the new unit firmly in the context of wider efforts to deliver policies in line with its secondary growth and competitiveness objective, as also seen in other recent regulatory initiatives including the Small Domestic Deposit Takers regime, which is focused on a lighter touch regime for low(er) risk UK focused banks, and the more recent announcements relating to:

• the intention to reduce authorisation timelines;
• the first phase of reforms to the Senior Managers and Certification Regime to streamline processes and increase efficacy; and
• the recent changes to the MREL regime, which included the increase of the total assets indicative thresholds from £15-25 billion to £25-£40 billion.

The PRA has also referenced its Future Banking Data programme, which aims to deliver tangible cost reductions in banking regulatory reporting, as well as improvements to the relevance, quality and timeliness of data collection and its commitment to speeding up the time for review and response to firms’ IRB model applications, as part of which it is "exploring a foundation IRB approach” which would allow firms to use PRA-prescribed values for loss-given default instead of estimating their own for the purposes of modelling their capital requirements.

As such, the Scale-Up Unit is better understood as a further step in the PRA's longer-term approach in seeking to balance a robust regulatory regime with supporting and encouraging market entrants (and therefore competition) where it comes to smaller banks.

It is fair to say that there has been significant movement in this regard. For example, as of 13 October 2025, 56 firms have opted in to become an SDDT out of around 80 firms that the PRA estimate could be eligible. Of these, some 24 have done so since the PRA published its September 2024 consultation to permit these smaller banks to adopt a simpler approach in calculating their Pillar 1 and Pillar 2a capital requirements, now confirmed in near-final rules published just days after the announcement of the Scale-Up Unit (PS 20/25).

A properly resourced Scale-Up Unit, committed to understanding and assisting banks as they scale up, could certainly bring real benefits, although the point at which the PRA considers a bank too advanced for the Scale-Up Unit's support is a critical missing detail.

It will also be interesting to see what the FCA plans are for solo-regulated firms, particularly in the payments space where the difference in regulatory obligations that small authorised payment and electronic money institutions are required to follow and those their fully licensed counterparts are subject to, is quite stark.

What’s next?

Banks, building societies and insurers have until 30 November 2025 to register their interest in belonging to the Scale-Up Unit cohort, with engagement with the first cohort of "Scale-up banks and building societies" starting from December 2025.

The FCA is keen to hear from solo regulated firms to inform the scope of their scale up unit.

How can Hogan Lovells' combined legal and consulting teams help?

We have significant experience in supporting new and growing financial institutions with all aspects of their business journey, from the authorisation process with the FCA and (where relevant) the PRA to assessing the regulatory implications as they grow their business post-launch.

The combination of our legal and consulting teams provides you with a full range of services, clear guidance on how the solutions can be applied within the business and what to expect in dealing with the regulators as you expand into new sectors. If you would like to discuss how we can help you, please reach out to any of the people listed in this article or your usual Hogan Lovells contact.

Authored by Charles Elliott.