The PRA has published a package of communications (including four consultation papers) which set out proposed changes to PRA rules and binding technical standards arising out of EU withdrawal. The communications are relevant to all firms authorised and regulated by the PRA, including passporting firms. The PRA has stated that the communications do not reflect any changes of policy and merely provide updates in light of the UK’s withdrawal from the EU.
The proposed changes would not take effect until after the end of the “Implementation Period", which has been agreed in principle by the UK and EU as part of the Withdrawal Agreement. If the Withdrawal Agreement is not agreed, the Government has proposed to provide power to the PRA to grant transitional relief to ensure that firms have time to comply with any changes.
The PRA also provided further detail on the proposed Temporary Permissions Regime (TPR) which is intended to come into effect in the worse-case scenario: a hard Brexit with no Implementation Period. The TPR would allow firms currently passporting into the UK to continue carrying on regulated activities under a “deemed permission" for a maximum of three years while they seek authorisation from the UK regulators. The deemed permission would cover those activities the firm was permitted to carry on in the UK prior to exit day.
Set out below is a brief summary of the details published on the proposed TPR:
1. Eligibility criteria for entry into the TPR and the notification process that firms will need to follow in order to enter the TPR
Only firms authorised to carry on regulated activities in the UK under the passporting regime on exit day will be eligible to enter the TPR. Firms will need to notify the relevant regulator of their intention to enter the TPR prior to exit day.
2. Exit from the TPR
A firm’s deemed permission under the TPR can end when (1) the application for authorisation is approved or rejected, (2) the PRA uses its own initiative power to cancel the deemed permission, or (3) three years from exit day (extendable by HM Treasury by 12 month increments). Where an application for authorisation is rejected, the firm will be expected to run-off its existing UK regulated activities.
3. Extension of the PRA’s statutory deadlines to process authorisation applications from EEA passporting firms (including any existing applications)
The current statutory time limits are 6-12 months; this would be extended to three years from exit day in order to allow the UK regulators time to manage the volume of authorisation applications (subject to parliamentary approval). This proposed extension is part of the legislation delivering the TPR and would therefore also be applicable during an Implementation Period.
4. Regulatory requirements and Threshold Conditions for firms in the TPR
Firms in the TPR will be subject to the same obligations as if they were fully authorised; firms operating in the UK on a services basis only will be required to comply with a more limited set of rules based on the rules which currently apply to third country firms operating on a services basis. Firms will not be required to demonstrate that they satisfy the Threshold Conditions in order to enter the TPR however they will be required to notify the PRA if they believe they may have failed to satisfy the conditions.
5. Possible transitional relief for firms in the TPR in respect of any rules or requirements that will apply to them for the first time
This includes rules in relation to Solvency and Minimum Capital Requirements for insurance branches, certain reporting obligations, and certain composite rules for insurance branches.
6. Financial Services Compensation Scheme (FSCS) protection
TPR insurers will be required to pay FSCS levies in respect of both new and existing policies that are protected by the FSCS and no transitional relief will be provided. The PRA is proposing to make changes to the FSCS rules for policies issued or re-issued after exit day such that they must relate to a risk or commitment situated in the UK, Channel Islands or Isle of Man in order to be protected.
7. Senior Managers and Certification Regime and the TPR
Compliance with the requirements under the SM&CR will not be a pre-requisite of entry into the TPR. The PRA has also proposed that all firms in the TPR, including those only providing cross border services, will be required to have a person approved to perform the Head of Overseas Branch function.
Further information was also provided in respect of Solvency II approvals, Gibraltar firms and fees. The information published by the Bank of England on the TPR can be found here.
The full package of communications can be found here.