As part of the UK’s official planning to mitigate potential risks to the financial services sector of a “no deal” Brexit scenario, HM Treasury published on 24 July a draft of the regulations1 that will enable the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) to operate a "temporary permissions regime" (TPR). The regime will come into effect only if the EU and the UK do not ratify the Withdrawal Agreement.
In the event of a no deal, and to benefit from the TPR, firms must notify the relevant regulator (PRA or FCA) during the “notification window” of their intent to pursue temporary authorisation after Brexit day. The regulators will open the window from January 2019 to the day before Brexit (ie 29 March 2019). Firms that have not made the relevant notification by that date will not be able to rely on the TPR.
1 The EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018
Actions for EEA inbound firms
Firms should complete the FCA or PRA online survey, if they have not done so already. This short survey includes questions covering contact details, the directives under which firms are passporting into the UK and firms’ intentions around accessing the UK market following the UK’s withdrawal from the EU. The information provided will allow the PRA and FCA to identify firms for which a temporary permission may be relevant and enable direct communications with interested firms about the regime and authorisation process, as well as to support and shape the overall design of the regime.
Also, given the shortness of the window, it is very important that all types of EEA firms or investment funds that provide financial services of any sort into the UK now take the necessary steps to prepare their notifications. Otherwise, they may find that any form of cross border activity carried out under the relevant EU branch or services passports (or other inbound activities that are at the discretion of the UK) are abruptly curtailed on Brexit day.
Firms should look out for the proposed consultation papers on the new rules in Autumn 2018, with the accompanying policy statements expected early next year.
Issues for UK firms
The TPR assists only inbound European Economic Area (EEA) firms or investment funds. At present no reciprocal offer (for UK firms or funds currently passporting into the EEA) has been made by the EU. Its official negotiating position remains that there can be a transitional period only if all elements of the UK’s withdrawal are agreed. If no such agreement is reached, Union law will cease to apply directly on the day of Brexit.
Some pieces of EU legislation do not include the ability for third country firms to provide services into the EU, and those that do generally require that the UK’s regulatory regime first be confirmed “equivalent”. Absent a transition, there may well be a delay in the UK obtaining such confirmations. As such, the future for access to the EU remains uncertain for financial services in general, and for the retail clients in particular.
|It continues to be a priority, therefore, for all firms (both UK and EEA) to finalise and implement their Brexit plans. The TPR, although welcome in many ways, would effectively do no more than delay the impact of Brexit, and only for inbound EEA firms and funds.|
The TPR – key details
Scope of the regime
Inbound EEA firms will be able to rely on the TPR in cases where before exit day they possess a branch or a cross-border services passport, provided they currently act under:
The regime requires a notification to be made to:
This can take the form of an application for authorisation if already submitted or through notification prior to Brexit day. The FCA plans to open its notification portal in early January 2019.
The TPR is designed to allow the regulators to process the applications for authorisation from firms in a measured way. It will extend the current six-month (complete application) and 12 month (incomplete application) periods for regulatory review of applications to three years for the PRA.
Incoming EEA firms with Part 4A permissions in addition to passported activities (i.e. EEA firms with consumer credit top-up permissions) will be able to act within the scope of their current permissions, notwithstanding that they will have to submit a Variation of Permission to include the passported permissions.
Firms applying for authorisation from the FCA will be allocated a "landing slot" in which they will have to submit their authorisation application. These slots will be confirmed after Brexit, with the first one being October to December 2019 and the last being January to March 2021.
For deposit-taking EEA credit institutions, significant investment firms and insurers, the PRA notes that firms may make either:
Supervisory scope applying to firms within the regime
The impact of the TPR would be that firms relying on it will have a Part 4A permission, meaning that they will come within the UK regulators’ scope of supervision. Notwithstanding this, the FCA notes that it will “seek to preserve the status quo as much as possible”.
In overview, the principles of FCA supervision that will apply to firms within the TPR will involve compliance with:
HM Treasury intends to grant the FCA and the PRA power to grant forms of transitional relief in order to phase in their post-Brexit requirements.
Detailed requirements on firms