The passporting regime will cease to continue when the transition period for the UK leaving the European Union (EU) ends on 31 December 2020. From that moment, European Economic Area (EEA) firms that want to continue offering regulated financial services and fund managers marketing funds in the UK will either have to be authorised and regulated by the Financial Conduct Authority (FCA) or be registered under the Temporary Permissions Regime (TPR). The FCA have announced that EEA firms have one final opportunity to register when the window re-opens on 30 September 2020.
It may seem an odd time to revisit the TPR, but there is method in my madness. Firstly, I want to make sure that firms which have not registered, but want to continue trading in the UK, don’t lose that opportunity. Secondly, entry into the TPR does not mean that EEA firms need to wait for a ‘landing slot’ before compiling their application to authorised and regulated by the FCA – in fact there are competitive benefits to not waiting.
TPR: What is it?
First, a reflection of what the TPR is and why it was introduced.
In March 2018, the UK, and the EU reached an agreement on the terms of a transition period following the UK’s withdrawal from the union. The transition period is due to operate until 31 December 2020, with no indication currently that the UK Government will seek to request an extension. During this time, EEA firms continue to benefit from the ‘passporting regime’.
Financial services firms in any EEA member state can use the passporting regime to establish a presence or carry out permitted activities in any other member state, without the need to seek direct authorisation in that state (the principle of ‘mutual recognition’).
When the passporting regime falls away at the end of the transition period, the TPR will provide a backstop. It will allow incoming EEA firms to continue operating in the UK within the scope of their current permissions for a limited period, currently a maximum of three years after the end of the transition period, while they seek full UK authorisation.
Although the TPR is for all firms, EEA payment firms currently passporting into the UK which have already notified the FCA of their intention to continue UK business will be deemed to have ‘permission’ to do so on a temporary basis (whether under Part 4A of the Financial Services and Markets Act (FSMA), the Payment Services or E-Money Regulations.
The scope of the permission will only reflect the activities/services listed in the firm’s passport immediately before the end of the transition period.
The TPR Window
Not quite as exciting as Sky Sports’ coverage of the football transfer window closure, but still might be worth watching. The window for firms to notify the FCA that they want to use the TPR is due to reopen on 30 September 2020. This gives all firms and fund managers that have not yet notified the FCA three months to do so before the end of the transition period.
TPR is not binding
The TPR is as much a tool to enable the FCA to manage its authorisation workload as it is a mechanism to provide firms with as much time as possible to finalise and implement their plans.
Once in the regime, the FCA will allocate firms that will be solo-regulated for a specific period or ‘landing slot’, within which they will need to submit their application for UK authorisation and this decision is likely determined by business category.
However, the situation is slightly different for payment firms. Rather than being allocated a specific landing slot per se, payment firms must send the FCA a ‘notice of intention’ within one year of the end of the transition period. In this notice, firms must tell the FCA whether it or a UK subsidiary (whichever is applicable) intends to apply for authorisation/registration, or whether it is intending to cease providing payment services in the UK.
Nevertheless, that is not to say that firms cannot choose to make an application now, irrespective of their landing slot or notice of intention.
Get ahead of the queue
EEA firms will have to establish a branch (not possible for payments firms) or an authorised or registered UK subsidiary to provide services in the UK when their temporary permissions end.
There is nothing in the terms of the TPR to prevent any EEA firm from looking to establish a separate company in the UK and seeking direct authorisation from the FCA immediately. Or, at least, starting that planning in earnest.
Firms still need to bear in mind the statutory deadlines for the FCA to determine authorisation or registration applications, i.e. six months for a ‘complete’ application (three months for payments firms) and up to 12 months if incomplete. It may be that an early submission can provide you with a competitive advantage over other firms that choose to delay making their applications until towards the end of the transition period.
At Compliancy Services we are experienced in assisting firms, including those from the EEA or further afield, with the authorisation process, having successfully managed over 1100 authorisations to date. If you need support in compiling an application for authorisation/registration, please do get in contact, we would be happy to help. You will find helpful advice and resources by visiting https://www.compliancy-services.co.uk/fca-authorisation.
