On 17 December 2018, HM Treasury published a draft version of the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019, together with explanatory information and an explanatory note and three annexes on the run-off regimes established by the Regulations, for details of these annexes see this webpage.
On the same date, the FCA published a statement on the financial services contracts regime (FSCR). The FSCR will provide a limited period of time during which EEA passporting firms can continue to service UK contracts entered into prior to exit, in order to wind down their UK business in an orderly fashion.
The FCA says that this legislation will be relevant where EEA firms which passport into the UK to carry on a regulated activity here fail to notify it that they wish to enter the temporary permissions regime or are unsuccessful in securing authorisation at the end of it, but still have regulated business in the UK to run off.
The FSCR is created solely to allow EEA firms to run off existing UK contracts and conduct an orderly exit from the UK market. EEA firms within this regime will not be able to write new UK business. They will be limited to regulated activities which are necessary for the performance of pre-existing contracts. EEA firms which wish to continue doing new business in the UK after exit and those firms wishing to have more flexibility in the regulated activities they are permitted to carry on will need to enter the temporary permissions regime and secure a UK authorisation. In addition, EEA firms managing UK authorised funds will not be able to continue to manage those funds under FSCR after exit day. Those firms should notify the FCA in order to enter the temporary permission regime to benefit from the transitional period. The same applies to trustees or depositaries of such funds.
The FSCR will automatically apply to EEA passporting firms that do not notify the FCA that they wish to enter the temporary permissions regime, but have pre-existing contracts in the UK which would need a permission to service. The FSCR will be time limited depending on the type of regulated activity being performed: it will apply for a maximum of 15 years for insurance contracts and 5 years for all other contracts. HM Treasury can extend these periods, if necessary, based on a joint assessment by the FCA and the PRA. Firms in the FSCR will have to keep authorisation in their home state and must notify the FCA if their authorisation is cancelled or varied.
The FSCR will provide two discrete mechanisms:
- supervised run-off: for EEA firms with UK branches or top-up permissions in the UK, and firms who entered the temporary permissions regime but did not secure a UK authorisation at the end;
- contractual run-off: for remaining incoming services firms.
The FCA says that it will publish a consultation paper on these early in 2019.