Reed Smith Client Alerts

Although the United Kingdom exited the European Union at midnight (11pm BST) on 31 January 2020, the terms of the withdrawal agreement between the UK and the EU provided for a transition period until midnight (11pm BST) on 31 December 2020 (Exit Day). During the transition period, EU financial services laws will continue to apply to UK financial institutions, and passporting rights will be recognised both in the UK and the EU during the transition period.

Passporting rights will likely cease at the end of the transition period, and access to markets via the “equivalence” route may fail to materialise (and is at risk of being withdrawn if the UK and EU regulatory regimes subsequently diverge). This may mean that UK and EU financial institutions will be required to be separately authorised in the jurisdictions in which their clients are based (unless they can rely upon an exclusion) in order to continue to maintain and expand this part of their businesses.

This article explores some of the options that may be available to UK and EU financial institutions wishing to conduct business in the UK, France, and Germany after Exit Day, assuming that there is no EU-UK deal or recognition of some kind by the UK and/or the EU.

UK perspective

Overseas persons exclusion

EU financial institutions may be able to continue to carry on cross-border business into the UK (that is, not via a UK branch) in reliance on the overseas persons exclusion (or on the basis that the business is not conducted in the UK from a characteristic performance test perspective).

This exclusion applies to persons who carry on regulated activities in the UK but who do not do so, or do not offer to do so, from a permanent place of business maintained by them in the UK and who comply with certain other criteria which depend on the scope of the activities performed (for example, they perform the activity with or through an authorised person or as a result of a legitimate approach –that is, in compliance with the UK’s financial promotion restriction).

This will require EU financial institutions to conduct an analysis of all of their activities against the relevant criteria to ensure that the exclusion is applicable.


Both the UK Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) are operating a temporary permissions regime (TPR) to allow “incoming” EU financial institutions (operating from a UK branch or on a cross-border services basis into the UK) to continue to carry on regulated business in the UK under their existing permissions after Exit Day while they apply for full authorisation. The TPR is expected to remain in place for three years after Exit Day, by which time all EU financial institutions requiring authorisation must have received authorisation.

Some EU financial institutions have already submitted their TPR notification and need take no further action at this time. While banks and insurers can no longer enter the TPR operated by the PRA, and the FCA TPR window is currently closed, the FCA has indicated that it will reopen the TPR notification window before the end of the transition period. This means that it may still be possible for EU investment firms to enter the FCA TPR before Exit Day. Engagement with the FCA will be critical to securing TPR status.

Notification under the FCA TPR is made via the FCA electronic system known as Connect. Once submitted, the FCA will send an email to the investment firm to confirm that the TPR notification has been received. After Exit Day, the FCA will contact EU investment firms to organise a ‘landing spot’ for their authorisation application.

Application for authorisation

EU financial institutions may need to apply for authorisation from the PRA and/or FCA depending on the scope of the activities performed. This will require establishing a physical presence in the UK with the necessary substance and financial resources. The formal application is made by submitting the appropriate forms along with all relevant supporting information (for instance, a business plan, information about key individuals and owners, as well as financial and compliance material) and the correct application fee to the appropriate regulator. Certain individuals may need to be registered with the UK regulators as “senior managers” (for example, directors, compliance officers, money laundering reporting officers).

A reasonable pre estimate of the time involved in preparing the forms would be one to two months, although this will vary depending on the nature and complexity of the firm’s proposed business. The UK regulators have up to six months to respond to a completed application.

Once the applicant has obtained the relevant permission and has become an authorised person, it will be subject to ongoing supervision by the PRA or FCA in accordance with Financial Services and Markets Act 2000, relevant secondary legislation and the PRA and/or FCA rules relating to issues such as corporate governance, regulatory capital, liquidity, business and market conduct, reporting and transparency, systems and controls, market abuse, and client money and assets, as well as anti-money laundering.