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Brexit: An update for regulated firms

26 October 2020

Charlie Baillie looks at two recent updates from the FCA that firms need to be aware of – the reopening of the temporary permissions regime (TPR) and Brexit 'Dear CEO' letters.  

1. Temporary permissions regime (TPR)

On 30 September 2020, the FCA reopened the TPR notification window for firms, and updated their TPR webpage. The TPR has been designed to enable those firms, and certain types of funds, which currently passport into the UK from the EEA, to continue to operate after the end of the Brexit transition period on 31 December 2020. The TPR was created as a temporary solution to enable EEA firms passporting into the UK to continue to operate in line with their existing passporting rights for a limited period (a maximum of three years) while they seek UK authorisation. 

At the end of the Brexit transition period, EU laws will cease to apply to the UK, and the current passporting regime will fall away. Therefore, EEA firms currently passporting into the UK, that wish to maintain access to the UK market, must have submitted a TPR notification to the FCA (by the end of 30th December 2020).

Submitting a TPR notification
Whilst many firms have already submitted a TPR notification, over 1000 according to the FCA, the window for doing so has been shut since January 2020. Therefore, we expect there still to be a large volume of firms who have not yet submitted. Over the next two months, it is critical for relevant firms to assess their need for continued UK market access before the deadline, and if necessary, put in motion the FCA notification process sooner rather than later.

Firms wishing to make use of the TPR should note that it is only a short-term solution i.e. they should only apply for it if they intend to seek full UK authorisation after the end of the transition period. Applications are submitted via FCA Connect (the regulators online applications platform).

Financial Services Contracts Regime
Additionally, the FCA has also established the Financial Services Contracts Regime (FSCR). The FSCR was created to provide an orderly means for EEA firms that do not choose to enter the TPR to wind down their operations in the UK. The regime allows these firms to run-off any pre-existing contractual obligations in the UK. The FSCR will automatically apply to EEA firms passporting into the UK that do not choose to enter the TPR, after the end of the transition period. The FSCR is designed to assist firms with an exit from the UK, it is not designed for firms wishing to maintain a continued UK presence.

2. Dear CEO Letter

On 21 October 2020, the PRA and FCA ("the Regulators") published a Dear CEO letter which urged Banks and Insurers to complete their preparations for the end of the transition period, irrespective of whether a deal is reached, between the EU and UK. The letter highlights that it is "imperative that firms continue to build on their preparatory work to ensure that they, and to the extent possible, their clients, are ready for a range of scenarios at the end of the transition period". The Regulators warn in the letter that there could be a degree of market volatility and disruption to insurance and financial services, especially where there are EU-based clients involved.

The letter specifically highlights that insurers should undertake a contingency planning exercise to ensure they can continue to service customers with EU-based liabilities – "Firms should ensure that they are prepared for the end of transition period, have measures in place to prevent insurance activity without authorisation and ensure service continuity of cross-border business".

Additionally, the Regulators' specifically encouraged Insurers to ensure that customers can still make payments after the transition period ends, which is of particular concern for firms with EU-based customers who make insurance payments via UK bank accounts.

Finally, the letter concluded by urging insurance firms to contact relevant European authorities to apply for permission to continue operating in Europe under the 'savings provision' arrangements. The 'savings provision' allows firms up to two years to apply to the UK courts for permission to transfer insurance policy liabilities out of the UK.

How DWF Regulatory Consulting can help

Some firms are well advanced with their preparations and scenario planning, but most firms have taken a similar approach in terms of keeping a watching brief on Brexit negotiations, rather than devoting significant resources to trying to plan for the unknown. However, with just 10 weeks left until the transitional period expires, an Exit Agreement between the UK and EU is still unsigned and firms must be ready.  

We have worked with a number of clients to deal with a number of eventualities. These include:

  1. Brexit Scenario Analysis – to look at specific scenarios to tell you how aspects of your business will be impacted in the event of 'No-deal'; 
  2. Brexit Impact Assessments - we can undertake holistic analysis in the event of a range of eventualities, if some type of Withdrawal Agreement is reached; 
  3. Brexit Strategy Planning – after undertaking analysis, we can assist with informing and implementing your Brexit strategy, to mitigate the impacts of Brexit, mitigate client detriment and manage commercial disruption; 
  4. TPR Notification Support - For UK firms that currently rely on passporting, we can help you submit your TPR notification to the FCA, as well as supporting you in understanding what it means to operate in the UK under the TPR, and as a fully authorised UK firm. This includes support with developing an FCA authorisation application, and; 
  5. EU27 Member Registration - we can assist with applications to individual EU member states for those firms who currently passport out of the UK and who hope to be able to continue to write new business in the each of the EU27 states after 31 January 2020. Time is certainly of the essence  for those still wanting to consider this option. 

We can also provide ongoing compliance support via our retained services offering, to provide assistance in managing your firm's ongoing regulatory obligations – either as a fully authorised firm or a third-country branch. 

For further details, please contact us.

Author: Charlie Baillie.

Further Reading