EU Firms using the Temporary Permission Regime should look out for their Landing Slot
March 19, 2021
As firms will no doubt now be aware, the United Kingdom (“UK”) voted to leave the European Union (“EU”) at 11:00 pm on the 31 December 2020 (“Brexit”) and the UK is now classified as a “Non-EEA” country. Consequently, for UK and European financial services firms, this was a moment of significant change and therefore closes one era of opportunity, but it also opens another…
A Trade and Co-operation Agreement (“TCA”) has been agreed between the UK and the EU but this does not include any substantive provisions in relation to on-going financial services. From 1 January 2021, cross-border financial services trade between the UK and the EU will be governed by the UK and EU third country equivalence regimes embedded into the respective financial services regulations.
The UK has found the EU equivalent in respect of 28 regimes and the EU has found the UK temporarily equivalent in respect of only central counterparties (for 18 months) and central security depositories (for 6 months). The EU has said that there will be no extensions to these regimes as it seeks to move the relevant derivatives and custody business onshore and into EU frameworks.
What about the equivalence question on financial services? The TCA does not at this stage include any elements pertaining to any equivalence frameworks for financial services between the UK and Europe. The EU has assessed the UK’s response to the Commission’s equivalence questionnaires and a series of further clarifications are needed, particular regarding how the UK will diverge from the EU regulatory framework having now left Europe and how the UK will use its supervisory discretion regarding EU firms and how the UK’s temporary regimes will affect EU firms moving forward.
As the UK is no longer part of the EU, European incoming firms and European firms currently using a UK “services” or “branch” passport can no longer make use of the “passporting” regime available to firms within Europe. The Financial Conduct Authority (“FCA”) established a temporary permissions regime (“TPR”) to enable EU firms to continue to service existing clients into and from the UK for a limited period post Brexit, before deciding whether to apply for authorisation with the FCA, or cease undertaking their services into the UK entirely.
The TPR allows an EU firm to:
- continue to undertake in the UK the regulated activities covered by its passport as if it were authorised under Part 4A of FSMA 2000; and
- continue to market any EU domiciled fund to UK investors post Brexit
Details of firms with temporary permissions can be located on the FCA register, but can only be viewed on a firm’s specific FCA entry on the website and firms with temporary permissions cannot be filtered out.
What are the next steps post Brexit?
The window for relevant firms to notify the FCA ended on the 31 December 2020 when Brexit occurred and the TPR is now closed. No new applications will not be accepted and those firms who made use of the TPR are unable to alter their original notifications.
Funds without temporary marketing permissions because an EU firm did not act before the deadline or are in the pipeline to be marketed into the UK during 2021, will now need to notify the FCA under the local National Private Placement Regime (“NPPR”).
How many firms made use of the TPR regime?
It has been reported in the press that over 1,500 EU firms have applied to the FCA to make use of the TPR and subsequently around 1,000 firms who had no previous operations within the UK will therefore likely be applying for FCA authorisation once provided with a “landing slot”.
How long will the Temporary Permissions Regime Last?
The TPR is currently scheduled to run for a maximum of three years, until the end of 2023, but this is subject to a review and possible extension.
What are the Next Steps?
The FCA is now contacting firms in the TPR and providing confirmation of the firm’s landing slot (i.e., the opening and closing dates) during which firms have to either apply or cancel their TPR.
For firms operating under the TPR and who will continue to do so after the TRP ends, they will need to apply for direct FCA authorisation under Part 4A of the Financial Services and Markets Act 2000 (FSMA). For firms that choose not to submit an application they will need to cancel their temporary permission and the FCA will provide guidance on how to do this at the time they issue a landing slot.
For firms using the TPR to market funds into the UK once the TPR finishes, they will need to apply for their fund(s) to receive UK recognition by the FCA to be able to continue marketing these funds within the UK, or apply to cancel to their temporary permission.
Failure of a TPR participant to complete a successful application during their allocated landing slot may result in the FCA cancelling their temporary permission on their behalf.
Firms in the TPR should now start to assess their UK strategy ahead of being provided with their landing slots and should review whether they require a UK authorisation or whether there are alternative approaches available which meet their requirements.
Where FCA authorisation is likely, firms should bear in mind timing to prepare the application and then be granted the authorisation can take between 6-9 months with delays possible due to the COVID-19 pandemic. If firms require additional time to prepare their application, the FCA may grant a change of the opening and/or closing date on request by the firm.
Can EU Firms apply to change their permissions within the TPR post notification?
The FCA has made clear that firms will not be able to apply to change or “top-up” permissions (i.e. change or vary their permissions to do things in the UK outside the scope of their original passporting rights) on a temporary basis during their time operating under the TPR. Firms operating on a temporary permissions basis that wish to expand their regulated activities will need to apply for those extensions as part of their new application for full FCA authorisation during their allotted landing slot.
The FCA will supervise the UK business operations of EU firms within the temporary permissions regime as though they hold a UK Part 4A permission. This will bring those EU firms into the full scope of FCA supervision, without any of their current home-host state restrictions on UK regulatory action. This will mean the FCA will be granted transitional powers to be able to supervise EU firms effectively operating within the UK and will, for example, allow the FCA to investigate EU firms under their Enforcement Regime, if required.
Where can I find up to date information on the TPR Regime?
The FCA has a dedicated TPR website, which is updated regularly.
How Effecta can Help:
- Assist your firm obtaining FCA authorisation for your firm or fund within the dedicated landing slot timeframe.
- Provide ongoing compliance support to your firm once FCA authorisation has been granted by the UK Regulator.
- Assist your firm with the required FCA notifications to market your funds in the UK under the local National Private Placement Regime.
- Provide support, advice and assistance to your firm within the TPR and your ongoing UK regulatory and supervisory requirements to meet the FCA rules.
- Keep your firm up to date with the latest FCA requirements in a post Brexit world via our newsletters and quarterly updates.