A spokeswoman for the firm said: "The board at Portillion confirm that the application to the Financial Services Authority for a banking licence has been withdrawn.
"Difficult market conditions continue. However, it is the board's belief that opportunities in the mortgage market remain and all options are being evaluated by the board and investors."
She was unable to confirm what the firm’s 20 employees would be doing in the future.
The company has been through several guises starting as Checkmate Mortgages in 2007 later rebranding to Portillion in February 2010.
Portillion had planned to offer a range of savings products direct and mortgages through intermediaries after securing over £58m in investment from SBI Group of Japan.
Last year Knight, Portillion’s chief executive and former GMAC-RFC boss, was forced to leave the firm after being diagnosed with a brain tumour.
Knight is said to be in reasonable health.
