Inbound passporting EEA financial services firms wishing to continue operating in the UK within the scope of their current permissions after Brexit and fund managers wishing to continue to market passported funds in the UK after Brexit can now register for temporary permission to do so.
The temporary permissions regime will allow EU-based firms and funds which currently access the UK market by way of an inbound 'passport' to continue to serve their UK customers for up to three years in the event that the UK exits the EU without a formal implementation period in place, giving them time to apply for full authorisation. No reciprocal temporary permissions regime has yet been proposed by the EU for UK firms and funds which currently rely on outbound passports to serve customers in other EU member states.
The Financial Conduct Authority (FCA) opened the notification window for the TPR today, on 7 January, and it will remain open until 28 March 2019, the day prior to when the UK is scheduled to exit the EU.
EEA firms passporting into the UK must notify the FCA that they wish to enter the TPR via the FCA's Connect system. Fund managers must also notify the FCA of which of their passported funds they wish to continue marketing temporarily in the UK using the TPR, also via Connect. The FCA has published separate guidance for firms (12-page / 627KB PDF) and fund managers (10-page / 673KB PDF) on how to notify.
"In a time of unprecedented uncertainty for UK and international asset managers, the opening of the temporary permissions regime today provides much welcome surety that European funds and managers will have continued access to the UK market for up to three years, even in a 'no deal' situation," said Dublin-based investment funds expert Gayle Bowen of Pinsent Masons, the law firm behind Out-Law.com. "This will help mitigate disruption to both the UK and EU markets in the event of a hard Brexit."
Elizabeth Budd, a London-based expert in asset management and investment funds also of Pinsent Masons, said: "Managers need to note that there are a number of requirements that need to be completed in order to be able to register under the TPR. Firms will need to consider the UK and EU jurisdictional implications of registering and seek advice as appropriate."
The TPR will be relevant in the event of a 'no deal' Brexit. This is where there is no implementation period in place so the existing passporting arrangements between the UK and the EEA cease when the UK leaves the EU on 29 March 2019 - assuming also that there are no passporting arrangements otherwise agreed with the EU. The TPR is expected to be in place for a maximum of three years.
Details of firms with temporary permission will be available on the FCA's financial services Register. Notifying firms that will be solo-regulated by the FCA will be given a time period, known as a 'landing slot' by the FCA, within which they are to submit their application for UK authorisation or variation of permission to the FCA. According to the FCA, the first 'landing slots' will be from October to December 2019 and the last will be from January to March 2021. The FCA will inform firms of their 'landing slots' after the UK's exit from the EU.
If a firm's ongoing business plans for the UK change they can cancel their temporary permission once all their UK business has ceased. The FCA has further clarified on its dedicated TPR webpage that there is no fee to notify the FCA of wishing to enter the regime. According to the FCA "firms should not wait for confirmation of whether there will be an implementation period before they submit their notification".
EEA firms passporting to the UK that fail to submit a notification within the notification window will not be able to rely on the TPR and will fall within the Financial Services Contracts Regime. The Financial Services Contracts regime will also be relevant to EEA firms that were within the TPR but do not successfully obtain authorisation from the FCA and have regulated business in the UK to run off. According to the FCA the Financial Services Contracts Regime will provide a way for EEA firms "to run off existing UK contracts and conduct an orderly exit from the UK market."
In relation to EEA-domiciled investment funds, the FCA has clarified that "once the notification window has closed, fund managers that have not submitted a notification for a fund will be unable to use the temporary permissions marketing regime for that fund". It said that they will "not be able to continue marketing that fund in the UK on the same basis as they did before exit day" and that "the only exception to this is for new sub-funds of EEA UCITS that are in the temporary permissions marketing regime on exit day". The FCA said that it will be possible for such new sub-funds to enter the temporary permissions marketing regime after exit day.
According to the FCA, fund managers will be obliged to notify the regulator which of the sub-funds they want to enter into the TPR if a fund is divided into sub-funds.
"Only these sub-funds [that are notified] will keep their marketing rights," it said.
Like in relation to EEA firms, the FCA said there will be no fee for fund managers notifying it of which of their passported funds they wish to continue to market temporarily and "managers should not wait for confirmation of whether there will be an implementation period before they submit their notification". Details of investment funds with a temporary permission will also be provided on the financial services register.
Firms based in Gibraltar that passport into the UK will not need to use the TPR and, after Brexit, can continue to operate as they do currently until 2020.