The UK has established a “Temporary Permissions Regime” to avoid a regulatory cliff edge for EEA financial services firms in the event of a no-deal Brexit. The notification window to take advantage of the regime has now opened.
Avoiding a regulatory cliff edge
Over 8,000 EEA firms rely on EU financial services “passports” to provide financial services in the UK cross-border or through a branch without obtaining a local UK licence. In the event of a no-deal Brexit, these firms would lose those rights overnight. This would present significant legal issues for many of these firms, who, without further action, would be unable to continue their UK activities without breaching UK licensing requirements.
To avoid this situation the UK is putting in place a legislative framework known as the “temporary permissions regime”, which will allow EEA firms currently benefitting from passports to convert these into UK licensing permissions for three years. During this time, they can either apply for a permanent UK licence, or wind down their UK operations.
How do firms take advantage of the temporary permissions regime?
To benefit from the regime, firms must either make an application for a UK licence or notify the UK regulators before exit day (29 March 2019).
The FCA has directed firms to notify them through the Connect system between 7 January 2019 and 28 March 2019 and has published guidance
on how to make the notification. Firms that should make their notification to the FCA include payment services firms, electronic money firms and investment firms.
What are the implications of using the regime?
Firms taking advantage of the temporary permissions regime should note that they will come fully in scope of the UK regulators’ oversight (i.e. they will technically no longer be able to comply with “home state” rules in their local EEA country in certain cases rather than UK rules). The UK regulators have stated that they will take a proportionate approach to applying UK rules to firms in the temporary permissions regime, for instance allowing them to be deemed to comply with UK rules when they can demonstrate “substituted compliance” with their local EEA rules in some cases.
Firms using the regime will also be allocated a “landing slot” to submit their application for UK authorisation within the three years that they benefit from the temporary permissions. The first landing slot is expected to be in Q4 2019 if there is a no-deal Brexit.
What about firms who do not use the regime?
The UK is also putting in place legislation to establish a “financial services contracts regime” to allow certain firms who do not enter the temporary permissions regime or who do not secure a licence or fully wind down their business by the end of their temporary permissions to run-off their existing UK contracts in an orderly fashion. Further details can be found in our note
on the topic.
What’s happening next?
The UK regulators are expected to publish final rules for firms entering the temporary permissions regime during Q1 2019. Please visit our Brexit webpage to learn more about our Brexit resources, and how we can assist you in preparing for Brexit.