The Financial Conduct Authority (FCA) has established a temporary permissions regime (TPR) and a temporary marketing permissions regime (TMPR) to allow EU firms and funds, which passport into the UK (e.g. under MiFID, UCITS, AIFMD, EMD and PSD) on a cross-border or branch basis, to continue operating in the UK on the basis of their existing passporting permissions for a limited period of time after Exit Day. In order to benefit from the TPR and TMPR, certain notifications are required to be made to the FCA.
The TPR and TMPR notification window is currently closed, but the FCA will reopen it on 30 September 2020. The TPR will cover the firm’s pre-existing business contracts and any new business contracts entered into during the TPR. The Prudential Regulation Authority (PRA) has not announced a re-opening of the equivalent TPR for dual regulated firms (e.g., credit institutions and insurers).
What do I need to do?
During the previous window for TPR, EU firms were expected to make the notification by submitting a form via Connect (the FCA’s online system). It is likely that this will be the same format for notifications once the notification window re-opens on 30 September 2020.
The TPR is expected to last for a maximum of three years (though HM Treasury has the power to extend the duration of the TPR by increments of 12 months). It is important to note that during this three-year period:
- EU firms will be expected to take steps towards obtaining full authorisation in the UK if required (some firms will be given an authorisation landing slot by the FCA whilst others, such as payments and e-money firms, will need to submit a notice of intention within one year of Exit Day). In the event that the authorisation application is refused, the EU firm will be expected to run-off their existing regulated activities and will be placed in the Financial Services Contracts Regime (FSCR) instead (see below)
- EEA UCITS funds will be expected to take steps to seek recognition.
- EEA and UK AIFs that were marketed by EEA managers will need to notify the FCA under the relevant legislation.
It is paramount that any EU firm or fund wishing to continue to provide their services or market their fund(s) on the basis of their existing passporting permissions after Exit Day prepare to make such notification if they have not already done so, unless they are able to take the benefit of the UK overseas persons exclusion or some other exclusion. Please see our previous alert at reedsmith.com for further details.
Firms operating within the TPR will be subject to certain UK regulatory requirements, oversight and periodic fees.
What happens if a firm or fund does not enter the TPR or TMPR?
The FSCR has been set up to allow EEA firms to continue to service UK contracts entered into prior to the end of the transition period for a limited period of time. Importantly, such firms will not be able to enter into new business but will be limited to regulated activities necessary for the performance of existing contracts. The FSCR will apply for a maximum of 15 years for insurance contracts and five years for all other contracts.
It is important for EEA fund managers of UK-authorised funds to note that they will not be able to rely on the FSCR but will instead need to enter the TPR. Similarly, funds cannot be marketed in the UK on the basis of the FSCR; instead, notification via the TMPR will be required. Failure to enter the TMPR will mean that EEA UCITS funds will need to seek UK recognition to continue to market to the general public in the UK, and EEA fund managers that want to market EEA and UK AIFs in the UK will need to notify the FCA under the National Private Placement Regime.
Client Alert 2020-529
