The temporary permissions regime will enable relevant firms and funds which passport into the UK to continue operating in the UK if the passporting regime falls away abruptly when the UK leaves the EU.
In December 2017, the Government announced that, if necessary, it would introduce a temporary permissions regime for inbound passporting EEA firms and funds.
If there is not an implementation period and the passporting regime falls away when the UK leaves the EU, the temporary permissions regime will provide a backstop to ensure firms and funds can continue their business with minimal disruption.
It will allow inbound firms to continue operating in the UK within the scope of their current permissions for a limited period after exit day, while seeking full UK authorisation. It will also allow funds with a passport to continue temporarily marketing in the UK.
This page explains more about how the regime will operate including an explanation of which firms and funds can use the temporary permissions regime and the process by which firms and funds will need to notify us that they want to enter the regime and obtain a temporary permission.
We are now formally consulting on the rules which we propose will apply to firms and funds in the regime.
Earlier in the year we launched an online survey for EEA inbound firms and funds. The survey includes questions covering contact details, the directives under which firms are passporting in to the UK and firms’ intentions around accessing the UK market following the UK’s withdrawal from the EU. Firms and fund managers should complete the survey, if they have not already done so. It should take no more than 15 minutes to complete.
|On this page|
|The current situation||What will change post-Brexit||Inbound firms and fund who can use the regime||The notification process for firms|
|The notification process for funds||Temporary permissions regime funding||Prepare for the regime||Next steps|
Financial services firms in any European Economic Area (EEA) member state can use the passporting regime to establish a presence or carry out permitted activities in any other member state. Investment funds can be marketed across the EEA under similar passporting provisions.
In March 2018, the UK and the EU reached an agreement on the terms of an implementation (or transitional) period following the UK’s withdrawal from the EU.
The implementation period is intended to operate from 29 March 2019 until the end of December 2020. During this time, EU law would remain applicable in the United Kingdom, in accordance with the overall withdrawal agreement. Firms and funds would continue to benefit from passporting between the UK and the EEA as they do today. Obligations derived from EU law would continue to apply and firms must continue with implementation plans for EU legislation that is still to come into effect before the end of December 2020.
However, we are continuing to prepare for a range of scenarios, including a scenario where the UK leaves the EU without a deal and without entering an implementation period.
In December 2017, the Government said it would bring forward legislation to establish a temporary permissions regime for inbound passported firms and funds, to enable them to continue their activities in the UK for a limited period after withdrawal. If there is not an implementation period and the passporting regime falls away when the UK leaves the EU, the temporary permissions regime will provide a backstop. It will allow inbound firms to continue operating in the UK within the scope of their current permissions for a limited period after exit day, while seeking full UK authorisation. It will also allow funds with a passport to continue marketing in the UK while seeking UK recognition.
The Treasury has now published drafts of the legislation that will establish temporary permissions and other transitional regimes for financial services firms and funds and other entities. The first covers FSMA firms operating in the UK under a financial services passport (this has now been laid in Parliament) and the second covers EEA payment institutions, EEA electronic money institutions and registered account information service providers.The others cover fund managers, trade repositories, and data reporting service providers.
If there is no implementation period, when the UK withdraws from the EU the UK will become a ‘third-country’ in relation to the EU and EEA firms will no longer be able to passport into the UK. As such, EEA firms may need to seek authorisation in the UK to continue to access the UK market. Similarly, EEA investment funds will also need to seek UK recognition to continue to market in the UK.
Under the temporary permissions regime, EEA firms currently passporting into the UK which notify us will be given permission under Part 4A of the Financial Services and Markets Act 2000 (FSMA) on a temporary basis. The scope of the permission will reflect the scope of a firm’s passporting permission pre-Brexit.
Separate legislation will enable EEA investment funds to continue to be marketed in the UK during the regime and details of this will be published in due course.
If required the temporary permissions regime will come into force when the UK leaves the EU on 29 March 2019 at 23:00. We expect the regime will be in place for a maximum of three years within which time firms and funds will be required to obtain authorisation or recognition in the UK, if required.
Firms which can use the regime
- Firms which have passports under Schedule 3 to FSMA in place before exit day, including firms with top-up permission.
- Treaty firms under Schedule 4 to FSMA which qualify for authorisation before exit day, including firms with top-up permission.
- 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.
These rights could be on a freedom of establishment, a freedom to provide services basis or both.
Funds which can use the regime
The following EEA-domiciled funds will be able to use the regime, if we have received notification of their intention to market in the UK under the relevant passport prior to exit day.
- UCITS schemes
- Alternative Investment Funds
Credit institutions and insurers
The Bank of England is the lead authority for authorising incoming EEA credit institutions and insurers. Any EEA credit institutions and insurers operating in the UK that have not contacted the Prudential Regulation Authority (PRA) at the Bank of England should do so now.
The information we provide here is still relevant to these firms, specifically the section on how we will be applying our Handbook to firms in the temporary permissions regime.
However, incoming credit institutions that are not accepting deposits in the UK should contact us rather than the PRA.
Payment and electronic money institutions
The Treasury has now published a draft of the legislation which will create the temporary permissions regime for EEA payment institutions, electronic money institutions and registered account information service providers. Further information is included in the policy note that accompanies the draft legislation.
Gibraltar-based firms that passport into the UK will not need to use the temporary permissions regime and will be able to continue to operate as they do now post-Brexit until 2020. The UK government will work closely with the Government of Gibraltar to design a replacement framework for after 2020.
Arrangements for other types of firms
Certain types of entity are outside the scope of the temporary permissions regime. The Treasury has indicated that it intends to introduce further specific regimes for entities operating cross-border and outside the passporting framework. Further detail of these arrangements will be set out in due course.
Firms will need to notify us that they wish to use the temporary permissions regime. This will be an online process and we expect to open the notification window in early January 2019. The notification window will close prior to exit day.
Once the notification window has closed, firms that have not submitted a notification will not be able to use the temporary permissions regime.
Details of firms with temporary permission will be shown on the FS Register.
We will allocate firms a period (a ‘landing slot’) within which they will need to submit their application for UK authorisation. After exit day, we will confirm firms’ landing slots so they can start to prepare their applications. We expect the first landing slot will be October to December 2019 and the last to be January to March 2021.
Firms with top-up permissions will need to submit a Variation of Permissions (VoP) application rather than an authorisation application.
If firms change their plans they will be able to apply to cancel their temporary permission once they have ceased all UK business.
Rules which will apply to firms in the regime
As firms in the regime will have Part 4A permission, the home-host state restrictions on regulatory action will no longer apply and they will come within the full scope of our supervision and rule-making powers. In implementing the regime, we will seek to take a proportionate approach that will enable firms to comply with our requirements from Day 1 while maintaining an adequate level of consumer protection.
We are consulting on how we will implement the regime in our consultation CP18/29: Temporary permissions regime for inbound firms and funds. Our proposals seek to preserve the status quo as much as possible.
Additional requirements on firms in the regime
- Financial Services Compensation Scheme (FSCS) – The FCA and the PRA each make rules which set out how FSCS cover works and is funded, covering different areas of the financial services industry. The draft temporary permissions regime legislation provides that the FSCS is only to cover UK branches (with limited exceptions) during the temporary permission regime in relation to the FCA’s areas of responsibility. Accordingly, our starting point is to provide customers of firms with UK branches in the regime with FSCS protection, equivalent to the cover provided to customers of UK firms. This addresses the possibility that the UK’s withdrawal from the EU could result in customers of these firms losing compensation scheme protection offered by home states. Firms in the temporary permissions regime would be required to contribute to the cost of the FSCS.
As a consequence of the draft legislation, customers of firms in the regime without a UK branch will not have access to the FSCS, other than where there is existing FSCS cover in respect of the activities of certain incoming fund managers.
The PRA will set out proposals for its areas of responsibility in relation to the FSCS separately.
- Financial Ombudsman Service – Our starting point is that firms in the regime without a UK branch should be included in the Compulsory Jurisdiction (CJ) of the Financial Ombudsman Service. This proposal ensures that customers of these firms will not lose rights to refer complaints to an Alternative Dispute Resolution (ADR) scheme on exit. These firms will be required to pay case fees and annual levies. Firms in the regime with a UK branch are already included in the CJ and this will continue as part of the regime.
- Senior Managers & Certification Regime – In line with the general approach described above, we intend to propose that, whilst in the regime, firms with branches should continue to comply with the requirements in relation to Approved Persons that currently apply to them, and then comply with the requirements of the Senior Manager and Certification Regime which are currently stated to apply to EEA branches when these requirements come into force. We do not intend to propose any requirements in this area for services firms, in line with the current position and the general approach.
- Safeguarding client money and custody assets (client assets) – To ensure client assets held by firms conducting investment business or insurance mediation are protected and to enable us to effectively supervise firms in the regime our starting point is that:
- Firms should report their client assets arrangements to us.
- Investment firms subject to MiFID II should provide an English translation of their client assets audit reports to us upon either our request, or receipt of an ‘adverse’ audit report on the adequacy of the firm’s arrangements under its client assets obligations.
- Firms should disclose certain information to UK clients relating to the treatment of their client assets in the event of the firm’s failure. We intend to propose that firms must make this disclosure at the point of entry into the regime in a durable medium, or via a website, providing certain conditions are met.
- Our Principles for Businesses – Our starting point is that the Principles for Businesses in our PRIN Sourcebook should generally apply in full to firms in the regime.
- Status disclosure – Our starting point is that firms in the temporary permissions regime will be required to include specific status disclosure wording in letters (or electronic equivalents) to indicate that they are in the regime.
- Single Financial Guidance Body (SFGB) – Our starting point is that all firms in the regime should be required to contribute to recovering SFGB costs from the 2019/20 levy fee year (this was already going to be the case for incoming EEA firms with a UK branch).
- Illegal money lending (IML) levy – The IML levy is raised to recover the expenses that the Treasury incurs providing funding for the teams tackling illegal money lending. The IML levy recovers these costs from consumer credit firms, including firms which currently passport in on a branch basis. Our starting point is that the IML levy also applies to consumer credit firms currently operating in the UK on a cross-border services basis.
Application of legislative requirements to firms
The Treasury has confirmed its intention to provide the financial services regulators with a general power to phase in post-exit requirements, allowing flexibility for firms to transition to a fully domestic UK regulatory framework. This will be available for firms in the temporary permissions regime. We will set out further details of how this might operate in due course.
We expect that the regime will work in a similar way for investment funds with fund managers notifying us of which of their funds they want to continue to market in the UK. As with firms, we expect to start accepting notifications in early January 2019 and the notification window will close prior to exit day.
Once the notification window has closed, fund managers that have not submitted a notification for a fund will be unable to use the temporary permissions regime for this fund and will not be able to continue marketing the fund in the UK.
Details of investment funds with a temporary permission which will continue to be marketed to UK retail investors will be shown on the FS Register.
We will provide further information on how funds will exit the temporary permissions regime in due course.
Rules which will apply to funds in the regime
As with firms in the regime, we are proposing to take a proportionate approach and operators, depositories and trustees of EEA-domiciled funds will need to continue to comply with all of our rules which applied immediately before exit day.
Further details are included in our consultation CP18/29: Temporary permissions regime for inbound firms and funds.
We recover our annual funding requirement (AFR) through periodic fees, paid annually in each fee-year (our fee-year runs from 1 April to 31 March). We consult each year, in April, on the allocation of the AFR across a series of fee-blocks that reflect broad sectors of the industry and are based on the regulated activities firms undertake in the UK. Funds have a separate fee-block within this series.
The AFR we recover from periodic fees is net of the contribution to our costs made by applicants for authorisation/recognition. Applicants pay authorisation/recognition fees when they submit their applications. The level of fees depends on the type of regulated activities the applicant is seeking permission to undertake and for funds depends on the type of fund and number of sub-funds.
Find out more about our fees.
Annual (periodic) fees
We also consult on the basis that firms and funds in the temporary permission regime will pay periodic fees from the 2019/20 fee year. The Consultation Paper includes the indicative fee rates so that firms and funds can estimate the periodic fees they will pay.
The draft 2019/20 fee rates will be consulted in our April 2019 fees rates Consultation Paper.We will provide feedback on responses to that consultation and publish the final fee rates in July 2019, following which invoices will be issued.
Find out more about the periodic fees cycle.
Firms and fund managers should also take these steps now to prepare to enter the regime:
- complete our online survey about their operations in the UK
- register for our Connect system
- firms should check their passport on the FS Register and let us know as soon as possible, through their national competent authority, of any changes. If this information is not on the Register, please contact us
- fund managers should check which funds they are actively marketing in the UK and let us know as soon as possible, through their national competent authority, of any changes
We will consult in Autumn 2018 on the detail of the rules that we propose should apply to firms and funds while they are in the regime, including fees and levies. The Consultation Paper will also set out further details of how the regime will operate. We will then publish a Policy Statement and final rules early next year.
If there is no implementation period and the regime is required, we would expect to open the notification window in early 2019.
Firms and fund managers should complete our short online survey for inbound firms and funds, if they have not already done so. No further action is required at this stage. We will contact those firms and fund managers that have completed the survey directly when our Consultation Paper is published.
If you have any questions please contact us.