But first, some backgroundThe Temporary Permissions Regime (TPR) enables EEA institutions to continue to provide services to customers in the UK as long as they notified the FCA prior to Brexit. Institutions now have a maximum of three years to continue to carry out business. By the end of this year, all TPR institutions must provide the FCA with a notification of intention as to their plans for their UK business. For most, this will be that they intended to become authorised in the UK, which will necessitate the setting up of a UK HQ or, if an EMI, possibly a branch.
Communication of timeframes from the FCAAlthough the FCA has not issued guidance on their website to institutions, many of our clients in the TPR have started to receive emails with information on next steps. The FCA is allocating firms a period of time, known as a ‘landing slot’ to submit their application and will be getting in touch with firms shortly to request an application form by a specified date. The timing of this is interesting as institutions may not have made a decision about their intention and may not be fully prepared to submit an application, given that the notification period ends at the end of the year. We know from guidance issued to firms with a Part 4A permission (banking, investments, insurance etc) that an opening and closing date will be given to firms to submit their application. If a firm’s authorisation/registration is rejected or its temporary authorisation cancelled, it will fall into one of two categories depending on how it is passported into the UK:
- Supervised run-off (SRO) – EEA firms with UK branches or top-up permissions in the UK, and firms who entered the TPR but then did not secure UK authorisation, or
- Contractual run-off (CRO) – for remaining cross-border services firms
So what is changing?The changes affect most chapters of the Approach Document. The key changes are summarised below.
- Safeguarding You must safeguard relevant funds in accordance with the UK regulations and the FCA’s expectations. You can find our blogs and webinars on this topic. The FCA may request confirmation of the measures taken by institutions to ensure customer funds are protected in the event of the insolvency and, you will have to engage a suitably qualified independent consultant to complete an annual safeguarding audit.
- Notifications You must notify the FCA of changes to ownership, directors and senior managers, and outsourcing arrangements. This is an interesting change as firms were not required to provide this information with the original passport notification, so the FCA would not be aware of the status quo and therefore have no details to compare the changes to. Other notifications include regulatory actions or adverse judgements taken in your home state.
- Reporting requirements You will have to submit data to the FCA via the Gabriel/RegData system. This includes fraud and operational risk data. Anecdotally some firms under the regime have not received correspondence from the FCA on accessing Gabriel/RegData.
- Financial crime You must comply with UK financial crime requirements. Our blogs and webinars are a good place to start. EEA institutions with a UK branch will already have an obligation to follow this requirement however cross border services firms, who previously followed the obligations of their home state requirements will need to understand how the UK differs and adapt it’s procedures. This includes SAR reporting to the UK FIU, the National Crime Agency.
- Customer complaints Similarly, EEA cross border services institutions will need to understand and adapt their procedures to follow UK requirements including understanding the role of the Financial Ombudsman Service.
Challenges for firms that provide cross border servicesAs you can see, if you have a UK branch you will already understand many of the UK regulations and how this applies to you. If you are however acting on a cross border service basis from your home state, the TPR represents a material change to your business. This is because you will be required to understand and adhere to the UK regulation and guidance which in various cases diverge from that of other EEA states. In both cases, firms wishing to operate in the UK after the conclusion of the TPR will be required to establish a physical presence and apply to the FCA for UK authorisation/registration.
Before you apply for authorisation/registrationIf you are contemplating FCA authorisation/registration, there are several other considerations that should be considered when planning your set-up. These include, but are not limited to:
- Directors and Senior Management – do they have suitable knowledge and experience, and can you demonstrate that your central management and control is in the UK?
- Outsourcing – what functions will remain with your parent company, and what oversight arrangements are there in the UK?
- Supplier agreements – will your existing supplier contracts cover your UK establishment, or will these need to be amended?
- Customers – will existing UK clients and contracts need to be transferred to the UK? Does your existing terms and conditions allow for the transfer of clients?
- Due diligence – does your UK customer due diligence records meet the requirements under UK AML regulations or is a refresh of these files required?