Following the publication of the Temporary Permissions Regime (“the TPR”) newsletter, regarding an update on the approach to international firms, the Financial Conduct Authority (“the FCA”) wishes therein to inform those international firms and encourage them to engage with the already published Consultation Paper (“The CP”) which was published on the 23rd September, 2020, and close on the 27th November, 2020. The FCA has set out its proposed approach for international firms which provide or seek to provide financial services that require authorisation. The FCA states that it does not propose to change existing rules or provisions.
The CP sets out FCA's proposal to assess applications for the authorisation of branches of international firms, which following the end of the transition period will include firms both from EEA and non-EEA jurisdictions. According to the FCA, once finalised, this will supplement its existing Approach to Authorisation and Approach to Supervision documents.
To whom this applies:
European Economic Area (EEA) firms that have applied for authorisation in the UK, or intend to seek authorisation in the future, including those which have notified (or intend to notify) for the Temporary Permissions Regime,
International firms from non-EEA countries that have applied or intend to apply for authorisation in the UK, or are already authorised in the UK.
The backbone of FCA’s approach to international firms:
The FCA believes that the approach it applied to date has been appropriate and proportionate. However, it wants to publicly set out the approach and factors it takes into account with the reason being, the anticipation of increasing demand from international firms to be authorised in the UK.
Currently, the majority of international firms in the UK come from the EEA using an establishment or services passport, or through exemptions available under EU law. However, after the EU withdrawal transition period, EEA firms will no longer be able to operate in the UK in the same way.
In order to effectively supervise a firm’s UK activities, international firms that require authorisation to undertake regulated business in the UK will be expected to have a physical place of business in the UK, whether this is via a branch or subsidiary.
For example, international firms operating in the UK through branches present some unique challenges and the FCA needs to consider whether the nature and scale of those activities would present additional risks of harm to UK consumers and the UK’s financial system, and whether these risks can be adequately mitigated.
Being regulated by the FCA:
The TPR will allow firms to continue to operate in the UK for a limited period after the end of the transition period within the scope of its passport into the UK, while applying for full authorisation in the UK, if required.
The TPR will now commence after the transition period, which is due to end on 31st December 2020.
Once a firm enters the TPR, it will be regulated by the FCA for its UK business and it will, at all times, need to meet the Threshold Conditions, adhere to Principles of Business and follow the relevant rules and guidance in the Handbook.
Within the Principles of Business, please pay attention to Principle 11, which requires firms to deal with the regulator in an open and cooperative manner.
For example, anything that the FCA should reasonably expect notice for, should be reported, such as business growth plans.
Firms within the TPR will also be required to pay annual fees and the levies that the FCA collects on behalf of other bodies in the UK. Further details are included in Policy Statement PS19/5.
Applying for authorisation:
Once a firm is in the TPR, the FCA will allocate it a period (or landing slot) during which it can apply for full authorisation in the UK, if required.
People who are working in the financial services should consider the UK’s Senior Managers and Certification Regime (SM&CR) which aims to strengthen market integrity, with the aim to reduce harm to consumer, by making individuals accountable for their conduct and competence.
Withdrawing a TPR notification:
In case a firm changes its plans and no longer wants to use the TPR, it can withdraw its notification at any time before the end of the transition period. In this case, the firm will not enter the TPR but may instead enter the UK’s financial services contracts regime (FSCR) under which it can wind-down its UK business.
Firms which may cancel their passports to the UK (via the local regulator) before the end of the transition period or firms whose home authorisation was cancelled before the end of the transition period, then those will not enter the TPR or the FSCR.
Financial services contracts regime (“the FSCR”):
In case a firm has changed its plans and no longer intends to carry on its UK business nor undertake new business, then that firm will need to wind down and enter the FSCR.
The FSCR will automatically apply to firms that are passporting into the UK at the end of the transition period (and have existing UK contracts to service which require a UK permission), but that do not enter the TPR, and will allow these firms to wind-down their UK business in an orderly fashion.
The FSCR does not cover new business and therefore if a firm wishes to undertake new business (which requires UK permission) after the transition period, the firm should not withdraw its TPR notification.
Updating details of UK tied agents:
Firms which provide MiFID services in the UK through tied agents, should include a list of those tied agents as part of its TPR notification.
Onshoring and the Temporary Transitional Power (‘the TTP’):
The Treasury has provided to the UK financial regulators the power to make transitional provisions to financial services legislation for a temporary period. The FCA intends to apply the TTP on a broader basis from the end of the transition period until the 31st March 2022.
This means that firms do not generally need to prepare to meet the alterations to their UK regulatory obligations brought by onshoring.
The TTP applies:
To firms and other regulated persons may continue to comply with their existing requirements for a limited period.
The FCA expects those legal persons to use the duration of the TTP period to prepare for full compliance with the onshore UK regime by the 31st March 2022.
Where the TTP does not apply:
Any remaining onshoring changes where the TTP does not apply, firms and other regulated persons must take responsibility to take reasonable steps during the TTP period to ensure compliance, at the latest by the 31st March 2022.
The FCA intends to undertake regulatory action where serious and foreseeable harm is being or has been caused.
For further information on obtaining authorisation via the TPR, full authorisation by the FCA, Fees or Withdrawing from the TPR, on Onshoring and the TTP, please get in touch with a member of the FAI COMPLY Team for specialised assistance by email: email@example.com.
Written by Constantinos Constantinides, Director of FAI Comply