The Financial Conduct Authority (FCA) has published a consultation paper (CP18/29) on the temporary permissions regime (TPR) for inbound firms and funds. The policy drive behind the establishment of the TPR is to deter the risks posed to consumer protection and market integrity which can be caused by an abrupt loss of passporting rights on exit day in the event that withdrawal agreement is not signed and there is no agreed implementation period. The intention of the FCA is to preserve the status quo for temporary permission (TP) firms as far as possible. The relevant stakeholders of the consultation paper include EEA firms that are passporting to the UK under FSMA and Treaty firms, managers of EEA-domiciled UCITS (including money market funds authorised under the MMF Regulation) marketed in the UK and managers of EEA-domiciled AIFs (including EuVECAs, ELTIFs and AIFs that are authorised as MMFs) marketed in the UK.
The TPR enables TP firms and TP marketing fund managers to continue activities for up to three years post-exit day. The period will vary, as the FCA will allocate each firm a three-month “landing slot” (application window) in which to apply for authorisation, registration or recognition in the UK. Landing slots will begin October to December 2019 with five further slots, the last one closing at the end of March 2021. The FCA will publish further information on the notification window and how firms should complete the notification process. Once the window is closed, firms cannot use the TPR.
Under the TPR, a TP firm is treated as an “authorised person” under FSMA. This means that they are subject to additional FCA supervision. Legal advice may be necessary on the implications of a TP firm coming under FCA supervision and also on whether using the TPR is necessary for the firm to continue access into the UK market.
The FCA will publish rule changes in due course to give effect to its proposals for TP firms relating to the Financial Services Compensation Scheme, the Financial Ombudsman Scheme (FOS), the approved persons regime and the Senior Managers and Certification Regime (SM&CR).
The FCA’s general approach is that it will apply to TP firms:
- all FCA rules which currently apply to them;
- all FCA rules which implement a requirement of an EU Directive (but allowing ‘substituted compliance’ in certain circumstances); and
- certain additional FCA rules which the FCA believes are necessary to provide appropriate consumer protection or relate to funding requirements.
However, the FCA rules provide a carve-out where compliance with pre-exit day home state rules would result in the TP firm breaching home state rules. An example given by the FCA as to when this may be relevant is a TP fund manager managing a UK UCITS scheme (requiring application of UCITS rules) which, following exit day, will be classified as a third country AIF by the TP firms’ home state (requiring application of AIFMD).
If there is no Brexit implementation period and the firm has notified the FCA that it needs TP, it will come into effect on exit day. It is expected that notifications can be made early in 2019.
The FCA is seeking feedback on Chapters 4 (applying FCA rules to the TPR) and 7 (funding the TPR) of the consultation paper only and the closing date of the consultation is 7 December 2018. The FCA intends to give feedback in early 2019 and publish final versions of these materials shortly before exit day.