The 'temporary permissions regime' provided for in the proposals is envisaged to apply should the UK exit the EU without agreeing on a Brexit implementation period with negotiators for the remaining EU member states.
In the event of that scenario, the rules planned would allow the EU-based firms to continue serving UK customers for a limited time from the date the UK leaves the EU – scheduled to be 29 March 2019.
The 'temporary permissions regime' is provided for in the draft EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations. The publication of the regulations had been anticipated, following an earlier announcement this summer by the Treasury.
The temporary permissions regime would essentially replace the current inbound 'passporting' system that is provided for in UK law under the EU legal framework that comes to an end at the point of Brexit. Inbound passporting is where an EEA financial services firm is able to rely on authorisations obtained by regulators in other EEA countries to provide their financial services in the UK. There is currently no reciprocal temporary permissions regime proposed by the EU for outbound passporting.
In a statement, the Financial Conduct Authority (FCA) explained the circumstances in which the temporary permissions regime would take effect.
The FCA said: "If there is no [Brexit] 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 of their activities will be given 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," it said.
Firms would need to apply to either the FCA or the Prudential Regulation Authority (PRA) in the UK if they wish to use the temporary permissions regime. Which regulator to notify will depend on what type of services firms provide. The FCA said it expects its "notification window" to open in January 2019 and to close before Brexit day. Firms for which the new regime is relevant, must submit their applications to use the temporary permissions regime before the window closes - otherwise they will not be able to use it.
According to the draft regulations, firms that use the temporary permissions regime would be able to continue operating as they had been for at most three years from the date of Brexit, although the wording enables the regime in certain circumstances to be extended "by increments of twelve months", the PRA said.
More details on how the temporary permissions regime will operate, as well as details of fees and levies that will be due, will be detailed in the autumn in an FCA consultation paper, the regulator said. In the meantime, the FCA has included an overview of their current expectations as to how the rules and relevant levies will apply on their webpage that they encourage affected firms to read,
The government said it will lay the regulations on the temporary permissions regime before the UK parliament in the autumn.