The temporary permissions regime for inbound passporting EEA firms and funds – our approach

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.

EEA firms and fund managers can now notify us if they wish to use the temporary permissions regime. Notifications should be submitted via our Connect system before the end of 28 March 2019.

We have published Policy Statement PS19/5 setting out the rules that firms and operators, depositories and trustees of EEA-domiciled funds in the temporary permissions regime will need to comply with.

EEA passporting firms should also the review the information below regarding the Financial Services Contracts Regime which will automatically apply to them if they do not notify us that they wish to enter the temporary permissions regime, but have pre-existing contracts in the UK which would need a permission to service.

Summary

In December 2017, the Government announced that, if necessary, it would introduce a temporary permissions regime for inbound passporting EEA firms and investment 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 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 exit day, while seeking full UK authorisation. 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 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.


On this page      
The current situation What will change after Brexit Inbound firms and investment funds who can use the regime The notification process for firms
The notification process for funds Temporary permissions regime funding The financial services contracts regime The transitional power and application of legislative requirements to firms and investment funds
Prepare for the 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 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 investment 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 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 temporary permissions regime in place. All four Statutory Instruments (SI) have now passed into law. These relate to:

What will change after Brexit

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 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 pre-Brexit.

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

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 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 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, 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) before exit day.

These rights could be on a freedom of establishment, a freedom to provide services basis or both.

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 prior to exit day.

  • 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 on exit from the EU 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 exit day) in the United Kingdom, subject to certain conditions.

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.

Gibraltar-based firms

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.

The notification process for firms

Firms will need to notify us that they wish to use the regime using our Connect system. Notifications will need to be submitted by the end of 28 March 2019.

Firms should also have regard to the following directions:

We have also published a guide to Connect for firms (PDF) covering the notification process.

There will be no fee for firms notifying us that they wish to use the regime and firms should not wait for confirmation of whether there will be an implementation period before they submit their notification.

Firms that have not submitted a notification will not be able to use the temporary permissions regime.

Fund managers should note that a temporary permission notification on behalf of their firm will not cover any passports they have for the purposes of marketing funds in the UK.  Fund managers should submit a separate fund notification form telling us which of their stock of passported funds they wish to continue to market in the UK temporarily after exit, if appropriate – see the notification process for funds below.

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

Landing slots

We will allocate firms that will be solo-regulated by the FCA 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 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 published Policy Statement PS19/5 setting out the rules which will apply to firms and investment funds in the regime. 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 temporary permissions regime 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 temporary permissions regime 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 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 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 temporary permissions regime 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 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) – All EEA branch firms in the regime will be required to contribute to SFGB costs from the 2019/20 levy fee year on the same basis as UK firms, without the discounts that previously applied to EEA branch firms. All EEA cross-border service firms will pay the minimum fee, where a minimum fee applies under the levy rules.
  • Devolved Authorities’ debt advice levy – All EEA branch firms in the regime will be required to contribute to Devolved Authorities’ debt advice costs from the 2019/20 levy fee year 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. Our Consultation Paper included the indicative levy rates so that firms could estimate the IML levy they will pay. Following consideration of the responses to this consultation we have decided not to require TP firms to report tariff data (measure of size) relating to business they undertake on a cross-border service basis. TPR branch firms will continue to pay the minimum IML levy and the variable fees on the tariff data above the minimum size threshold. TPR cross-border service firms will only pay the minimum IML levy.

Further details are included in our Policy Statement.

The notification process for funds

Fund managers will need to notify us of which of their stock of passported funds they wish to continue to market in the UK temporarily using Connect. Notifications will need to be submitted by the end of 28 March 2019.

Fund managers should submit their notification with a full list of the funds they wish to continue marketing in the UK after exit day. If managers think they will add funds to their notification before the window closes, they should wait until they have a full list before submitting it to us.

If a fund is divided into sub-funds, the manager must notify us which of the sub-funds they want to enter the regime. Only these sub-funds will keep their marketing rights.

Read more information on the temporary marketing permission regimes, including our directions.

We have also published a guide to Connect for fund managers (PDF) covering the notification process.

Fund managers should note that if they have passports other than for the purposes of marketing funds in the UK (for example, a MiFID passport), they should also submit a firm temporary permission notification form, if appropriate – see the notification process for firms above.

There will be no fee for fund managers notifying us of which of their stock of passported funds they wish to continue to market in the UK temporarily and fund managers should not wait for confirmation of whether there will be an implementation period before they submit their notification.

Once the notification window has closed, fund managers that have not submitted a notification for a fund will be unable to use the temporary marketing permission regime for this fund and will not be able to continue marketing the fund in the UK in the same manner as they did before exit day. The only exception to this is for new sub-funds of EEA UCITS that are in the temporary marketing permission regime on exit day (see above).

Details of EEA UCITS with a temporary marketing permission which will continue to be marketed to UK retail investors will be shown on the FS Register.

New sub-funds to EEA AIF umbrella schemes which have entered the temporary marketing permissions regime cannot be added to the temporary marketing permissions regime. New sub-funds will need to be marketed via the National Private Placement Regime (NPPR) procedure. Fund managers may, if they think it more straightforward, notify sub-funds and umbrellas in the temporary marketing permissions regime for entry via NPPR alongside any new sub-fund that they are seeking to market in the UK. Once the notification has been processed, you will have been deemed to exit the temporary marketing permissions regime for these affected funds.

Please note that funds which have not been passported into the UK cannot enter the temporary marketing permissions regime.  This includes EEA AIFs managed by UK domiciled firms and third-country AIFs or EEA AIFs which are feeders for a third-country master AIF, managed by EEA domiciled firms.  The FCA intends to apply the Temporary Transitional Power in relation to the provisions which govern how such AIFs can be marketed in the UK after exit day. As a result, these funds will be able to be marketed in the UK on the same basis as they were before exit day for a temporary period of 15 months, from 11pm 29 March 2019 until midnight 30 June 2020.

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 taking a proportionate approach. However, funds must enter the temporary permissions regime 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.

Further details are included in our Policy Statement.

Temporary permissions regime 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 also consulted on the basis that firms and funds in the temporary permission regime will pay periodic fees from the 2019/20 fee year. Our Consultation Paper included the indicative fee rates so that firms and funds can estimate the periodic fees they will pay.

Following consideration of the responses to this consultation we have 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 will continue to pay the minimum fees and variable fees on the tariff data above the minimum size thresholds. TP cross-border service firms will only pay the minimum fees. 

Further details are included in our Policy Statement.

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.

The transitional power and application of legislative requirements to firms and investment funds

The Treasury has put forward legislation to provide the financial services regulators with a power to phase in post-exit requirements, allowing flexibility for firms and investment funds to transition to a fully domestic UK regulatory framework.

Firms and investment funds in the regime will be subject to rules on the basis set out in PS19/5 from exit day. However, to the extent that the transitional power is used to provide relief more generally in respect of any of rules with which firms and funds in the regime are expected to comply (please refer to our statement on the transitional power for more detail), this relief will also be available for firms and funds in the regime.

To the extent that transitional relief will be provided in respect of obligations outside of our Handbook, this relief will also be available for firms and funds in the regime. In addition, where a regulatory obligation outside of our Handbook applies for the first time following exit day because it relates to a matter previously reserved to the firm’s home state regulator, we intend to permit substituted compliance with the equivalent obligation in the firm’s home state in the same way as we are proposing for our Handbook rules, unless otherwise indicated.

We do not intend to provide transitional relief for any of the rules which we have proposed specifically for firms or funds in the regime – as specified on this page.

The financial services contracts regime

The Government has published draft legislation for the financial services contracts regime (FSCR). If the UK leaves the EU without a withdrawal agreement, this will enable firms who do not enter the temporary permissions regime 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 temporary permissions regime, but have pre-existing contracts in the UK which would need a permission to service.

Find out more about the financial services contracts regime.

Preparing to notify

Before notifying, firms and fund managers should take these steps to make the process as simple as possible:

Next steps

The notification window is now open and will close at the end of 28 March 2019.

Notifications should be submitted via our Connect system. We have published guides to using Connect covering the notification process for firms (PDF) and fund managers (PDF).

Once you have submitted your notification, you will receive an email from us to confirm that we have received it.

Firms that do not notify us that they wish to use the temporary permissions regime will be subject to the financial service contracts regime.

If you have any questions please contact us.