Concerned as to how the temporary permissions regime may affect you as an inbound passporting EEA firm or fund? Read more on the FCA’s latest update on how it anticipates implementing the proposals.
In this article we consider the FCA’s website update from 24 July 2018 on how the temporary permissions regime will operate. On the same day, HM Treasury published draft legislation to establish the temporary permissions regime and the PRA also published a website statement on how the temporary permissions regime will operate.
The temporary permissions regime is being introduced to provide a ‘backstop’ if there is not a formal transition period and the passporting regime falls away when the UK leaves the EU. In such circumstances the temporary permissions regime will allow EEA firms with inbound passports to continue operating in the UK for a limited period after 29 March 2019.
It will also allow funds with a passport to continue temporary marketing in the UK. As such it is important to note that the regime is intended to operate as a backstop, whereby it will only come into effect if required; i.e. if there is no transition period and the current passporting regime falls away when the UK leaves the EU on 29 March 2019 at 23:00.
In these circumstances the regime aims to minimise disruption faced by EEA firms and UK businesses and consumers due to the loss of passporting rights arising from EU withdrawal and will ensure that firms can continue to carry out business as before, writing new contracts and servicing existing contracts entered into before exit day, for a temporary period after exit day. It will also mean that firms have appropriate time to prepare for and submit applications for UK authorisation and in the case of funds, UK recognition.
What does the FCA update cover?
The FCA update covers which firms can use the regime, the additional requirements that will apply, how the regime will operate and the notification process.
Firms that can use the temporary permissions regime
The firms and funds that can use the temporary regime are those that are either:
- Firms that have passports under Schedule 3 FSMA in place before exit day (including those with top-up permissions)
- Treaty firms under Schedule 4 to FSMA which qualify for authorisation before exit day, (including firms with top-up permissions)
- Electronic money and payment institutions who are exercising their passporting rights under the Electronic Money Directive (EMD) or the Payment Services Directive (PSD2) before exit day
- EEA-domiciled funds, (being for these purposes, either a UCITS Scheme or an Alternative Investment Fund (AIF)) if the FCA has received notification of their intention to market in the UK under the relevant passport prior to exit day.
How will the temporary permissions regime work?
Firms in the regime will have Part 4A permission. Therefore the home state restrictions on regulatory action will no longer apply and the EEA firm or fund will come under the full scope of supervision of the FCA.
Firms in the regime will need to comply with all FCA Handbook rules and guidance which currently apply to them, and all FCA Handbook rules which implement a requirement of an EU Directive (as well as relevant guidance), which are currently reserves to the ‘home state’, although the FCA intends to accept ‘substituted compliance’ in respect of these rules and in not proposing to apply any home state rules which relate to capital and related requirements.
The firms will also need to comply with certain additional FCA Handbook rules which the FCA believes should apply to provide appropriate consumer protection. Depending on how the firm is providing services (in particular whether cross-border or via a UK branch) the protection of the Financial Services Compensation Scheme (FSCS) and Financial Ombudsman Services (FOS) may also apply to the customers of such firms, in which case the firms will be subject to fees and levies.
The notification process
Incoming EEA firms will need to notify the FCA that they wish to use the temporary permissions regime. This will be an online process, which the FCA anticipates will be available from January 2019 and will close prior to exit day.
Such firms will be provided with a ‘landing slot’ within which they will need to submit their application for UK authorisation. Landing slots will be between October to December 2019 and the last will be between January to March 2021. The FCA has said it expects the regime will work in a similar way for investment funds with fund managers notifying the FCA with details of which of their funds they want to continue to market in the UK.
When will more information be provided?
More information is due to be provided from the FCA in the autumn, with details of the rules that the FCA will propose to funds while they are in the regime, including fees and levies. The Policy Statement and final rules are due to be published early next year.
- Regulated Funds
- Financial Services