The UK’s Temporary Permissions Regime (TPR) will allow regulated EEA financial services firms with a UK branch, and/or that provide cross-border services into the UK, to keep their branch, and keep providing cross-border services, if there’s a No Deal Brexit and their passporting rights fall away.
The TPR will also allow EEA-based fund managers to keep marketing their funds into the UK, in the same circumstances.
How can firms benefit from the TPR?
E-money issuers, payment service providers, account information service providers, investment firms, and fund and asset managers can take advantage of the TPR by giving notice to the Financial Conduct Authority, using its online Connect system. Notice must be given on or before 30 October 2019.
If the notice is given in time, the notice-giver will enter the TPR when Brexit occurs.
If the notice isn’t given in time, or it’s given and given and withdrawn, the branch will have to close, and the provision of cross-border services will have to stop, when Brexit occurs.
EEA passporting firms that do not notify the FCA that they wish to enter the TPR but have pre-existing contracts in the UK which they need a permission to service, will be expected to wind down their UK business. The Financial Services Contracts Regime (the UK’s “run off regulations”) provides for a limited period during which EEA passporting firms can continue to service UK contracts entered into prior to exit (but cannot write new business), in order to wind down their UK business in an orderly fashion. (The run off regulations aren’t part of the TPR and they’re outside the scope of this briefing. Please see further information below.)
What are the consequences of going into the TPR?
Firms that go into the TPR are expected to apply for a UK permission that (if granted) will allow them to (a) maintain their UK branches (if any); and/or (b) keep providing cross-border services into the UK. These firms are also expected to comply with more rules, from the moment they enter the TPR than they were expected to comply with until that point. But the detail varies, from one type of firm to the next. If you’re thinking about giving notice and going into the TPR, you might want to consider the nature and extent of these potential obligations first.
When does the TPR finish?
By definition the TPR is temporary. It will end on the earliest of:
- When the notice giver’s application for a UK permission is determined (either approved or rejected);
- When the UK regulators exercise their power to cancel the temporary permission (if they do). This might happen if the notice giver doesn’t submit an application for permission within two years of a No Deal Brexit; or
- Three years from the moment of Brexit (unless HM Treasury extends the regime).
The process that firms must follow in order to convert their TPR permission to full UK authorisation differs depending on the firm. For example, after exit day, the FCA will allocate FCA regulated firms with a Part 4A permission a “landing slot” within which they will need to submit their application for UK authorisation. In contrast, payment institutions and e-money will need to send the FCA a “notice of intention” within one year of exit day, stating whether they (or their UK subsidiary as applicable) intends to apply for authorisation (or registration) or whether they intend to cease providing services in the UK. Firms with top-up permissions will need to submit a Variation of Permissions (VoP) application rather than an authorisation application.
What about UK firms?
The UK’s TPR will not help UK firms; but some EEA Member States are operating an equivalent regime that might help some UK firms for a while.
A UK firm that cannot take advantage of TPR-equivalent arrangements in other EEA Member States, will need to make alternative arrangements.
If the firm has a European branch, and it wants to maintain it after a No Deal Brexit, it will probably need to:
- Get its branch authorised before Brexit;
- Subsidiarise its branch, and get the subsidiary authorised before Brexit; or
- Close its branch, at the moment of Brexit.
If the firm only provides services into the EEA on a cross-border services basis, it will need to work out whether it’s actually relying on its passport to do so (as a matter of UK law, and under the law of every other relevant European country). If the firm isn’t relying on its passport (and this is surprisingly common) a No Deal Brexit won’t stop it providing cross-border services - although it might mean the services have to be provided in a different way afterwards.
If the firm is providing cross-border services into the EEA, and it’s relying on its passport to do so, it will probably need to be authorised in the EEA, if it wants to keep doing that after Brexit. And, to get authorised, it might need to establish a branch or subsidiary first. So time is pretty short.
#mythbuster: notwithstanding the word on the street, it’s extremely unlikely that, if there’s a No Deal Brexit, the authorities will give firms time to sort themselves out. (Perhaps) surprisingly, from their perspective, there’s been more than enough time already(!)
Where can I find further information?
The “run off regulations” are available here.