In the event of a no-deal Brexit, EEA firms currently operating in the UK under passporting rights will be able to enter into a Temporary Permissions Regime (TPR) by giving notice to the Financial Conduct Authority (FCA) prior to 29 March 2019. This will allow them to continue to operate lawfully in the UK on the basis of their pre-Brexit permissions while they seek full authorisation. For more details read our earlier legal update.
The Government has published draft legislation for a financial services contracts regime (FSCR), which envisages the establishment of an additional regime alongside the TPR to enable EEA firms to fulfil their existing contractual obligations in the UK in the event of a no-deal Brexit.
The FSCR would allow EEA firms who do not enter the TPR (or who withdraw from it) to conduct an orderly exit from the UK market by running off regulated business.
The FSCR would apply automatically to EEA firms who have regulated business in the UK to run off, and either:
- do not enter the TPR; or
- are unsuccessful in securing, or do not apply for, full UK authorisation through the TPR route (and leave the TPR).
The FSCR would provide that these firms are able to carry on certain regulated activity in performance of a “pre-existing contract”. If a firm does not apply to enter the TPR, this will be limited to contracts in place before 29 March 2019. If a firm enters the TPR and later withdraws, it will cover contracts entered into up until the point of its withdrawal.
The right to rely on the FSCR will be time-limited depending on the type of regulated activity being performed. It will apply for a maximum of five years for all contracts except insurance contracts, for which there is a maximum of 15 years.
The actions permitted under the FSCR would be limited to necessary regulated activities such as:
- the performance of a contract;
- the transfer of property, rights or liabilities under a contract (where the transfer is from an FSCR firm then it must only be to a UK authorised firm); or
- the undertaking of certain activities in relation to managing financial risk.
Other activities will need to be carried out under the TPR; the FSCR will not be available
- to permit the marketing in the UK of EEA-domiciled investment funds; or
- to allow EEA-based managers, depositaries and trustees of UK-authorised funds to continue to manage or provide services to such funds after Exit Day.
The FSCR envisages that EEA firms relying on the FSCR will automatically enter into the supervised run-off regime during the period they rely on the FSCR.
The FCA has published a consultation paper on “Brexit and contractual continuity”. The paper sets out the details of the FSCR and the rules the FCA proposes should apply to firms under the regime. The consultation period for the FSCR proposals ends on 29 January 2019.