The temporary permissions regime for inbound passporting EEA firms and funds

The temporary permissions regime (TPR) will enable relevant firms and funds which passport into the UK to continue operating in the UK when the passporting regime falls away at the end of the transition period.

Update: 1 July 2020

The UK left the EU on 31 January 2020 and entered a transition period. During the transition period, EU law will continue to apply in the UK and passporting will continue.

The TPR will now take effect at the end of the transition period.

The window for firms and fund managers to notify us that they want to use the TPR is currently closed. Firms and fund managers that have already submitted a notification need take no further action at this stage.

We will re-open the notification window on 30 September 2020. This will allow firms and fund managers that have not yet notified to do so before the end of the transition period. There will also be an opportunity for fund managers to update their previously submitted notifications, if necessary.

We will communicate further on this in September.

 

Summary

In December 2017, the Government announced that, if necessary, it would introduce a temporary permissions regime (TPR) for inbound passporting EEA firms and investment funds.

At the end of the transition period, the passporting regime will fall away and the TPR will provide a backstop to ensure firms and investment 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 the end of the transition period, while seeking full UK authorisation if necessary. It will also allow investment 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 TPR.


On this page      
The current situation What will change after the transition period Inbound firms and investment funds which can use the regime The notification process for firms
Considerations for firms leaving the regime The notification process for funds TPR funding The financial services contracts regime
Next steps      

The current situation

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 a transition period following the UK’s withdrawal from the EU.

The transition period is due to operate until the end of December 2020. During this time, EU law remains applicable in the UK, in accordance with the overall withdrawal agreement. Firms and funds continue to benefit from passporting between the UK and the EEA. Obligations derived from EU law 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.

When the passporting regime falls away at the end of the transition period, the TPR 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 the end of the transition period while seeking full UK authorisation. It will also allow investment funds with a passport to continue marketing in the UK while seeking UK recognition.

The Treasury has put the legislative framework that will establish the TPR in place. All 4 Statutory Instruments (SI) have passed into law. These relate to:

Note that the date for the operation of the regime has been amended by secondary legislation under the new European Union (Withdrawal Agreement) Act so that it will commence after the end of the transition period.

What will change after the transition period

At the end of the transition period, 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 may also need to seek UK recognition to continue to market in the UK.

Under the TPR, EEA firms currently passporting into the UK which have notified us will be deemed to have 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 immediately before the end of the transition period.

As above, separate legislation will enable EEA investment funds to continue to be marketed in the UK during the regime.

The TPR will come into force at the end of the transition period. We expect the regime will be in place for a maximum of 3 years within which time firms and investment funds will be required to obtain authorisation or recognition in the UK, if required.

Inbound firms and investment funds which can use the regime

Firms which can use the regime

  • Firms which have passports under Schedule 3 to FSMA in place immediately before the end of the transition period, including firms with top-up permission.
  • Treaty firms under Schedule 4 to FSMA which qualify for authorisation immediately before the end of the transition period, including firms with top-up permission.
  • Electronic money, payment institutions and registered account information service providers who are exercising their passporting rights under the Electronic Money Directive (EMD) or the Payment Services Directive (PSD2) immediately before the end of the transition period.

These rights could be on a freedom of establishment basis, a freedom to provide services basis or both. But the scope of a particular firm’s temporary permission is determined by the type of passport it had and what was in its passport immediately before the end of the transition period.

Investment funds which can use the regime

The following EEA-domiciled investment 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 before the end of the transition period:

  • UCITS schemes
  • Alternative Investment Funds (including EuVECAs, EuSEFs, ELTIFs and AIFs authorised as MMFs) managed by EEA domiciled firms

The operator of an EEA UCITS which at the end of the transition period benefits from the temporary extension to the marketing regime will also be able to market ‘new sub-funds’ (ie those authorised by the relevant home state regulator after the end of the transition period) in the UK, subject to certain conditions.

Firms with MiFID tied agents

Firms which enter the TPR will have Part 4A permission. Therefore, those firms whose MiFID tied agents are on (or are added to) the Financial Services Register at the end of the transition period will continue to be able to act for the firm during its time in the regime. Tied agents which are not shown on the Register are not able to carry on regulated activities from the end of the transition period.

Firms considering using the financial service contracts regime to run off their UK regulated business should note that the regime for cross-border services firms (contractual run-off) does not support the use of tied agents in the UK.

Credit institutions and insurers

The Prudential Regulation Authority (PRA) at the Bank of England is the lead authority for authorising incoming EEA credit institutions and insurers and the PRA is responsible for deciding the process (and timescales) for such firms to be included within the TPR. There are further details on the Bank of England’s website.

However, some of 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 TPR.

Gibraltar-based firms

Gibraltar-based firms that passport into the UK are not able to use the TPR. They will generally be able to continue to operate as they do now post-Brexit until the end of 2020. The UK government will work closely with the Government of Gibraltar to design a replacement framework for after 2020.

The notification process for firms

The window for firms to notify us that they want to use the TPR is currently closed.

Firms that have already submitted a notification need take no further action at this stage.

We will re-open the notification window on 30 September 2020. This will allow firms that have not yet notified to do so before the end of the transition period.

Withdrawing a notification

If a firm withdraws its notification in writing before the end of the transition period it will not enter the TPR.

To withdraw its notification, a firm must do so in writing to us at: [email protected] before the end of the transition period.

For more information, read the supplementary directions for:

Details of firms with temporary permission will be shown on the Financial Services Register.

Rules which will apply to firms in the TPR

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 are seeking 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 have made the temporary permission rules instrument setting out the main rules which will apply to firms in the TPR. Firms may also be interested in Policy Statement PS19/5 which provides more background.

In summary, these rules are:

  • General provision – We will apply most of the Handbook via new provisions in GEN 2.2.26R onwards which apply rules that currently apply to passporting firms to temporary permission firms, plus UK home state rules which implement directives (subject to substituted compliance) plus certain other UK rules were protections would otherwise fall away.
  • 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 TPR legislation provides that the FSCS is only to cover UK branches (with limited cover for cross-border services) during the temporary permission regime in relation to the FCA’s areas of responsibility. Accordingly, our approach 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 will address 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 TPR will be required to contribute to the cost of the FSCS.
    As a consequence of the 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 has set out proposals for its areas of responsibility in relation to the FSCS separately (ie for deposit-taking and insurance).
  • Financial Ombudsman Service – Firms in the regime without a UK branch will be included in the Compulsory Jurisdiction (CJ) of the Financial Ombudsman Service. This will ensure 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 with a UK branch are already included in the CJ and this will continue as part of the regime. For firms that are already members of the Voluntary Jurisdiction (VJ), complaints (including post-exit complaints) about their pre-exit activities will continue to come under the VJ as they do now. These firms will also be allowed to pay a reduced VJ levy to reflect that certain activities which were covered by the VJ will now be covered by the CJ going forward.
  • Senior Managers & Certification Regime – In line with the general approach described above, our approach is that, while in the regime, firms with branches should continue to comply with the requirements of the Senior Manager and Certification Regime which are currently stated to apply to EEA branches. We have not proposed 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, we will require that:
    • Firms report their client assets arrangements to us by email.
    • Investment firms subject to MiFID II 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 disclose certain information to UK clients relating to the treatment of their client assets in the event of the firm’s failure. Firms must make this disclosure at the point of entry into the regime for existing clients and in good time before it safeguards client assets for new clients. Firms must make this disclosure in a durable medium and it should not be obscured or disguised by other information.
    • Tied agents and appointed representatives of firms subject to MiFID II in the TPR are prohibited from holding client assets.
  • Our Principles for Businesses – Our Principles for Businesses in our PRIN Sourcebook will generally apply in full to firms in the regime.
  • Status disclosure – Firms in the TPR 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) – The SFGB levies are raised to fund the SFGB which is now known as the Money and Pensions Service (MAPS). TPR branch firms will pay the SFGB levies on the same basis as UK firms. TPR cross-border service firms will pay the minimum SFGB money advice levy.
  • Devolved Authorities’ debt advice levy – The debt advice levy is raised to fund debt advice for consumers in Scotland, Wales and Northern Ireland. All TPR branch firms will be required to contribute to Devolved Authorities’ debt advice costs on the same basis as UK firms.
  • 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 and is recovered from consumer credit firms. The basis for calculating the IML levy mirrors that of FCA fees.

Firms in the supervised run-off regime of the financial services contracts regime (described below) are generally subject to the rules above, with certain modifications, for example in relation to status disclosure (see the specific provision in GEN 4 Annex 1C).

Considerations for firms leaving the regime

Once in the regime, we will allocate firms that will be solo-regulated by us a period (a ‘landing slot’) within which they will need to submit their application for UK authorisation. Firms will need to demonstrate that they meet our threshold conditions both on authorisation and on an ongoing basis. They should also consider how their UK business should be structured, including whether to apply for authorisation through a branch or as a UK-incorporated subsidiary.

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.

Our approach to international firms

We are currently reviewing our approach to the authorisation and supervision of international firms (which includes firms from both EEA and non-EEA jurisdictions). We intend to consult on how we assess applications from branches of international firms. This will supplement our existing Approach to Authorisation and Approach to Supervision documents and, for dual regulated firms, it will sit alongside the PRA’s Supervisory Statements for International Banks (SS1/18) and International Insurers (SS2/18)

We will set out where we see the potential for harm in different scenarios, for example where firms intend to safeguard client money or custody assets or serve certain types of customers, such as retail clients, or could pose risks to the good functioning of markets. The Consultation Paper will seek views on ways potential harms can be mitigated. We will also outline our expectations around firms seeking authorisation having a physical presence in the UK. Here our starting point is that, whether or not firms establish a UK legal entity, we will generally expect them to have a physical presence in the UK to help ensure that we can effectively supervise them. Firms will also need to ensure that personnel in the UK (including management and decision-making structures) and the systems in the UK (taking into account any offshore or outsourcing dependencies) are adequate for the firm to be effectively supervised.

Firms should also consider our guide to the Senior Managers & Certification Regime. This explains how the regime applies to FCA solo-regulated firms.

Payments and e-money firms

The process of leaving the regime is different for payments and e-money firms due to the different authorisation and registration conditions that apply to these firms.

EEA payment institutions (PI) will have to establish an authorised or registered UK subsidiary to provide services in the UK when the EEA firm’s temporary permission ends. This will also apply to e-money institutions (EMI) which provide payment services that are unrelated to e-money issuance.

EEA e-money institutions which only provide payment services related to e-money issuance, and EEA registered account information service providers (RAISP) will have to become authorised or registered to continue providing services in the UK when their temporary permission ends.

Rather than being allocated a landing slot, these firms must send us a ‘notice of intention’ within 1 year of the end of the transition period. In this notice, a firm must tell us whether it or a UK subsidiary (whichever is applicable) intends to apply for authorisation or, in the case of a RAISP, whether it intends to apply for registration or whether it is intending to cease providing payment services in the UK.

Firms should bear in mind the statutory deadlines for us to determine authorisation or registration applications, given the three-year maximum duration of the TP firms must allow sufficient time for the application to be considered in order to be able to continue providing payment or e-money services when the regime ends.

The notification process for funds

The window for fund managers to notify us that they want to use the TPR is currently closed.

Fund managers that have already submitted a notification need take no further action at this stage.

We will re-open the notification window on 30 September 2020. This will allow fund managers that have not yet notified to do so before the end of the transition period. There will also be an opportunity for fund managers to update their previously submitted notifications, if necessary.

Rules which will apply to fund operators in the regime

As with firms in the regime, we are taking a proportionate approach. However, funds must enter the TPR to continue marketing in the same manner or ensure they have another legal basis on which they may market their units to specific types of investors in the UK. Operators, depositories and trustees of funds in the regime will need to continue to comply with all relevant UK marketing rules.

We have made the temporary permission rules instrument setting out the rules that firms and operators, depositories and trustees of EEA-domiciled funds in the TPR will need to comply with. There is more information about these rules in our Policy Statement PS19/5.

TPR funding

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 consulted on the basis that firms and funds in the TPR will pay periodic fees: Consultation Paper CP18/29.

Following consideration of the responses to this consultation we decided not to require TP firms to report tariff data (measure of size) relating to business they undertake on a cross-border service basis. TP branch firms would continue to pay the minimum fees and variable fees on the tariff data above the minimum size thresholds but fees discounts would not apply. TP cross-border service firms would only pay the minimum fees (previously they paid no periodic fees). Funds would pay periodic fees on the same basis as they did prior to entering the TPR. 

Further details are included in our Policy Statement PS19/5.

The basis that firms and funds in the TPR will pay periodic fees set out in CP18/19 and PS19/5 will apply in the fee-year following the end of the transition period. For example, if the transition period ends on 31 December 2020 then the following fee-year will be 2021/22.

Find out more about the periodic fees cycle.

The financial services contracts regime

The Government has established the financial services contracts regime (FSCR) via the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019. At the end of the transition period the FSCR will enable firms who do not enter the TPR to wind down their UK business in an orderly fashion.

The FSCR will automatically apply to EEA passporting firms that do not notify us that they wish to enter the TPR, but have pre-existing contracts in the UK which would need a permission to service.

The basis that firms under the FSCR would pay periodic fees were consulted on in our Consultation Paper CP19/2. This basis will also apply in the fee-year following the end of the transition period.

Firms in the supervised run-off regime are generally subject to the rules set out above for TP firms.

Find out more about the financial services contracts regime.

Next steps

We will re-open the notification window on 30 September 2020. This will allow firms and fund managers that have not yet notified to do so before the end of the transition period. There will also be an opportunity for fund managers to update their previously submitted notifications, if necessary.

If you have any questions please contact us.

Page updates

31/01/2020: Information changed Updated with the latest information