Beyond Brexit: Temporary permissions for EU-regulated branches: a CASS perspective
06 December 2018
The Financial Conduct Authority (FCA) have recently published Consultation Paper CP 18/29. This sets out a proposed ‘backstop’ authorisation regime for branches of EEA authorised firms which currently operate in the UK under ‘passported’ permissions. This regime would will apply if the UK and EU do not reach a deal and therefore agree the transition period.
The EU and UK have already agreed a deal which provides an implementation period during which the current passporting arrangement will continue to apply. However this draft agreement must be ratified by both parties to be legally binding. If it is not ratified branches of EEA firms would lose the right to operate in the UK under passported permissions after 29 March 2019. In this case (only) the Temporary Permission Regime (TPR) would come into force. Whilst we still believe a deal will be done, it is prudent for all organisations to be implementing their contingency plans for a no deal outcome now.
The effect is to allow EEA branches which already have passported activities in line with the FCA register to continue to operate in the UK for a limited period. The maximum duration is three years from 29 March 2019, during this time the firm would either restructure its operations or, more likely, apply for direct authorisation in the UK as a third country branch. In the meantime they would have permission for the same activities as were previously covered by the passport. New permissions required due to Brexit will need to be applied for separately.
The overarching aim of the proposals is to preserve the status quo as much as possible, so that generally firms in the TPR will simply need to continue to comply with the rules which currently apply to them in their home state. However, there are certain additional FCA rules. In particular the FCA will require TP firms to report on their client assets arrangements in a ‘mini CMAR’ which discloses the value of money and assets held, and also covers governance, breaches, solvency, external audit, diversification, reconciliation frequency and resolution of discrepancies. As well as this, firms will have to provide the FCA with an English translation of any client assets audit report which shows that the firm did not have adequate arrangements; and inform UK clients about the arrangements which would apply in the event of the firm’s insolvency.
Firms will need to notify the FCA that they want a temporary permission. This will be an online application, expected to be available in early 2019; and once authorised, there will of course be fees to pay to the regulator!