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We expect that the UK’s Brexit transition period will come to an end at 11pm on 31 December 2020. At this point the passporting regime will also come to an end but as your firm has notified us, it will enter the UK’s temporary permissions regime (TPR).
The TPR will allow your firm to continue to access the UK market for a temporary period.
Being in the TPR will bring with it additional obligations as your firm will now be regulated by us for its UK business. This will include following our rules and relevant guidance at all times and also paying relevant FCA annual fees and levies.
Your firm should continue to build on the preparations it will already have made to ensure that it is ready to enter the TPR at the end of the year and is able to meet the regulatory requirements that apply once in the regime. To help with these preparations, this newsletter includes information about:
- being regulated by us once your firm is in the TPR and our approach to supervision
- which of our rules will apply to your firm while it is in the TPR
- the fees and levies your firm will need to pay once it is in the TPR
Your firm should also be considering its longer-term plans for continuing to access the UK market and whether this will require permanent authorisation in the UK. If this is the case, we would stress that in order to effectively supervise a firm’s UK activities, international firms that require authorisation to undertake regulated business in the UK will be expected to have a physical place of business in the UK, whether this is via a branch or subsidiary. To help with these considerations, we have also included information about:
- our approach to international firms
- being ready to apply for full authorisation in the UK when asked to do so (whether this is via a branch or a UK-incorporated subsidiary) and the associated application fees
As we reach the end of the transition period, your firm should consider carefully whether the use of the TPR is appropriate given the nature and scale of its UK business and its future plans. If your firm wishes to change its plans, we have included information in this newsletter about:
- withdrawing your firm’s TPR notification before 31 December 2020
- the UK’s financial services contracts regime
Lastly, there is some information about a Covid-19-related financial resilience survey that we will be sending in the next few days to which you will be asked to respond.
Our objectives
The FCA has a single strategic objective – to ensure that relevant markets function well – and we have three operational objectives:
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protect consumers – to secure an appropriate degree of protection for consumers
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enhance market integrity – to protect and enhance the integrity of the UK financial system
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promote competition – to promote effective competition in consumers’ interests
Our approach to supervision
We take a forward looking and strategic approach to our supervisory work and we use judgment to supervise against our rules that represent minimum standards of conduct. The firms that we regulate and their people are responsible for ensuring that they act in accordance our rules. We expect firms and their employees to meet these standards and hold them to account when they fail to meet them.
You can find out more about the purpose of, and our approach to supervising firms and individuals here.
FCA rules/Handbook
Once your firm enters the TPR it will, at all times, need to adhere to our Principles for Businesses and follow the other relevant rules and guidance in our Handbook.
We have set out a summary of the main rules which will apply to firms in the TPR in this section.
Principles for businesses
We have 11 Principles for Businesses which are our rules setting out the main regulatory obligations and high-level standards that authorised firms must meet. They are set out in full here. Firms in the TPR must adhere to the Principles which are:
- Integrity – A firm must conduct its business with integrity.
- Skill, care and diligence – A firm must conduct its business with due skill, care and diligence.
- Management and control – A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
- Financial prudence – A firm must maintain adequate financial resources (only applies to firms in the TPR to the extent that the firm is subject to capital requirements – see GEN 2.2.30R in here.)
- Market conduct – A firm must observe proper standards of market conduct.
- Customers’ interests – A firm must pay due regard to the interests of its customers and treat them fairly.
- Communications with clients – A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading.
- Conflicts of interest – A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
- Customers: relationships of trust – A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.
- Clients’ assets – A firm must arrange adequate protection for clients’ assets when it is responsible for them.
- Relations with regulators – A firm must deal with its regulators in an open and co-operative way and must disclose to the FCA anything relating to the firm of which the FCA would reasonably expect notice.
Please pay particular attention to Principle 11 where it is important to let us know anything relating to your firm of which we would reasonably expect notice. For example, plans to grow/change your UK business, your firm’s financial or operational resilience or changes in group structure or ownership.
If your firm contravenes one or more of the Principles, it could face enforcement action and this could, for example, result in a fine, public censure or your firm’s authorisation being suspended or removed.
General approach to the rules in our Handbook
In considering which of our rules will apply to firms in the TPR, we have taken a balanced approach which requires firms in the TPR to comply, in respect of their UK business, with:
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all FCA rules which currently apply to them
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all FCA rules which implement a requirement of an EU directive which are currently reserved to the firm’s home state and which therefore we do not currently apply to EEA firms (home state rules). Here we intend to accept ‘substituted compliance’ in respect of these rules. If firms can demonstrate they continue to comply with the equivalent home state rules in respect of their UK business (including where this is on a voluntary basis if the relevant rules cease to cover UK business) they will be deemed to comply with our rules
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certain additional FCA rules which we believe are necessary to provide appropriate consumer protection or relate to funding requirements, see below for further details of these rules (see the list in GEN 2.2.37G(2))
There is more detail on our approach here and full legal drafting of the rules can be found here.
Safeguarding client money and custody assets
To ensure client assets held by firms conducting investment business or insurance distribution are protected, and to enable us to effectively supervise firms in the TPR, we will require that:
- you report your client assets arrangements to us by email
- investment firms subject to MiFID II must provide us with an English translation of their client assets audit reports, either upon our request or on receipt of an ‘adverse’ audit report on the adequacy of the firm’s arrangements under its client assets obligations
- firms disclose certain information to UK clients relating to the treatment of their client assets in the event of the firm’s failure. Firms must:
- disclose this to existing clients when they enter the regime, and in good time before safeguarding client assets for new clients
- among other things, make this disclosure in a durable medium that is not obscured or disguised by other information and ensure the disclosure is prominent among other information
- tied agents and appointed representatives of firms subject to MiFID II in the regime are prohibited from holding client assets
Full details of these requirements are set out at CASS 14 in here.
Status disclosure
Firms in the TPR must include specific status disclosure wording in letters (or electronic equivalents) to UK retail customers to indicate that the firm is in the TPR.
Full details of the wording can be found at GEN 4 Annex 1B Statutory status disclosure (TP firms) in here. Please note that the wording to be used depends on whether your firm has a branch in the UK or not.
You firm should plan to make any changes required ready for the start of the TPR but we have provided an additional three months (to the end of March 2021) for your firm to make these changes, if additional time is required.
Disclosure on compensation scheme coverage
We expect firms in the TPR to consider and communicate to their customers any material changes in home state investor compensation scheme coverage as a result of the UK’s withdrawal from the European Union. For example, where that coverage is removed from the UK activities of firms in the TPR.
We would also expect firms in the TPR to provide, at a customer’s request, information concerning the firm’s inclusion (or not) in any compensation schemes, including the firm’s home state scheme.
There is more information on this requirement at paragraph 7.56 onwards in our Policy Statement PS19/5.
Senior Managers and Certification Regime
While in the TPR, firms with a UK branch should continue to comply with the requirements of the Senior Managers and Certification Regime (SM&CR) as it currently applies to EEA branches. There are no requirements in this area for firms in the TPR that were previously operating on a cross-border basis.
However, as noted below, you should take account of the SM&CR when considering plans to apply for full authorisation in the UK.
This section sets out details of the FCA fees and levies that firms in the TPR will be required to pay.
FCA annual fees
The FCA recovers its annual funding requirement through periodic fees, paid annually by the firms we regulate, based on the activities firms undertake. Our fee year runs from 1 April to 31 March and we consult each year, in April, on our fees for that fee year.
Once in the TPR:
- firms with a UK branch firms will continue to pay the minimum fees and variable fees (based on their tariff data) above the minimum size thresholds. However, fees discounts will no longer apply.
- firms without a UK branch will only pay the minimum fees
Further details are included in Chapter 7 of Consultation Paper CP18/29 and Chapter 7 of our Policy Statement PS19/5. Firms in the TPR will need to pay fees from the 2021/22 fee-year. We will consult on the actual fee rates in our annual fees and levy rates Consultation Paper scheduled to be published in April 2021.
We will invoice your firm between July and October each year. We will issue a single invoice covering your FCA fee plus fees and levies for any other regulatory organisations, as appropriate.
There is more information about how to calculate annual fees here.
Financial Services Compensation Scheme (FSCS)
The FSCS is an industry funded scheme of last resort that acts as a compensation safety net for customers of authorised financial services firms in the UK.
The FSCS will cover the activities of firms in the TPR with a UK branch and these firms will be required to contribute to the cost of the FSCS.
Customers of cross-border fund managers that do not have a UK branch also receive FSCS protection for certain activities, and these firms will continue to pay into the FSCS during their time in the TPR.
Customers of firms in the TPR that do not have a UK branch will not have access to the FSCS (other than where there is existing FSCS cover in respect of the activities of cross-border fund managers) and these firms will not be required to pay into the FSCS.
Please also note the guidance on disclosure about compensation scheme coverage above.
Financial Ombudsman Service
The Financial Ombudsman Service’s role is to ‘independently resolve certain disputes quickly and with minimum formality on the basis of what it believes is fair and reasonable in all the circumstances of the case’. Our ‘how to complain’ webpage explains the customer complaints process in our rules and how the Ombudsman Service fits into it.
Firms in the TPR with UK branches will continue to be covered by the Ombudsman Service’s ‘Compulsory Jurisdiction’ and will continue to pay levies and case fees.
Firms in the TPR firms without a UK branch will also come under the Ombudsman Service’s ‘Compulsory Jurisdiction’ and will be required to pay levies and case fees. This will ensure that customers of these firms will not lose rights to refer complaints to an Alternative Dispute Resolution (ADR) scheme after the transition period.
The size of the levy payable by each firm depends on the type and, in some cases, amount of ‘relevant business’ it does. The current case fee is £650, payable when the Ombudsman Service closes a complaint. More information about the Ombudsman Service’s funding can be found here.
The rules on levies and case fees can be found in the our FEES rules.
Other levies
Firms in the TPR will also need to pay the following periodic levies:
- Money and Pensions Service (MaPS) – Firms in the TPR with a UK branch will continue to pay the minimum levy and variable levies on their tariff data above the minimum size thresholds but discounts will not apply. Firms in the TPR without a UK branch will only pay the minimum money advice levy. Note: MaPS was previously known as Single Financial Guidance Body and is referred to as such in our rules.
- Devolved Authorities - Firms in the TPR with a UK branch will continue to pay the debt advice variable levies on their tariff data.
- Illegal Money Lending (IML) levy - Firms in the TPR with a UK branch will continue to pay the minimum levy and variable levies based on their tariff data above the minimum size threshold. Firms in the TPR without a UK branch will only pay the minimum IML levy.
Firms in the TPR will need to pay these levies from the 2021/22 fee-year. We will consult on the actual levy rates in our annual fees and levy rates Consultation Paper scheduled to be published in April 2021.
Once your firm is in TPR, we will allocate it a period (or landing slot) during which it can apply for full authorisation in the UK, if this is required.
Our approach to international firms
We would again draw your attention to our recent consultation on our approach to international firms. This is an important consultation and will be relevant to EEA-based firms that have notified for the UK’s temporary permissions regime (TPR). We would welcome your feedback and the consultation closes 27 November 2020.
In particular, we would remind you that in order to effectively supervise a firm’s UK activities, international firms (including those from the EEA) that require authorisation to undertake regulated business in the UK will be expected to have a physical place of business in the UK, whether this is via a branch or subsidiary. It will typically not suffice if a firm’s local presence has little or nothing more than a UK registered address.
In considering how effectively we can supervise international firms, we will assess the degree of cooperation between the FCA and the firm’s home state supervisor. This includes the existence of cooperation agreements and the ability to exchange confidential information.
We will also assess whether firms UK operations are appropriately financially resourced to avoid the risk that firms cannot meet any legal and regulatory obligations arising from their UK operations.
Applying for full authorisation
We expect firms to take regulation seriously and plan how they will meet the standards of the regulatory system before they apply. When you submit your application for full authorisation, we will expect you to be ready, willing and organised to comply, on a continuing basis, with our requirements and standards.
There is information about applying for full authorisation in the UK here. You can also find our Approach to Authorisation here.
You should note that we have a specific power to remove a firm from the TPR where it fails to apply for authorisation during its landing slot.
You should also take into account the UK’s Senior Managers and Certification Regime (SM&CR) which covers people working in financial services and aims to reduce harm to consumers and strengthen market integrity by making individuals accountable for their conduct and competence.
In addition to the annual fees mentioned above, your firm will also need to pay a fee when you submit your application for authorisation. This currently ranges from £1,500 to £25,000 depending on the complexity of your application. There is more information on authorisation application fees here.
However, you should also note that, as indicated in Chapter 8 of CP20/06, we are planning to revise authorisation application fees and intend to consult on the proposed changes in our annual fees policy Consultation Paper scheduled to be publish later in November this year.
If your firm has changed its plans and no longer wants to use the TPR, you can withdraw your notification at any time before the end of the transition period. If you do this your firm will not enter the TPR but may instead enter the UK’s financial services contracts regime (FSCR) under which it can wind-down its existing UK business. Please see below for more information on the FCSR.
To withdraw your notification, you must let us know by email before 31 December 2020.
If your firm cancels its passport to the UK (via your local regulator) before the end of the transition period or your firm’s home state authorisation is cancelled before the end of the transition period, your firm will not enter the TPR or the FSCR. However, you should ensure that any existing customers are fairly dealt with and any client assets are returned before taking this step.
If your firm has changed its plans and no longer wants to use the TPR, your firm may enter the FSCR.
The FSCR will automatically apply to firms that are passporting into the UK at the end of the transition period (and have existing UK contracts to service which require a UK permission) but that do not enter the TPR and will allow these firms to wind-down their existing UK business in an orderly fashion.
Please note that the FSCR does not cover new business and therefore if you wish to undertake new business (which requires a UK permission) after the transition period, you should not withdraw your notification.
The FSCR will also apply to firms that do enter the TPR but are subsequently unsuccessful in securing full authorisation in the UK but still have regulated business in the UK to run off. Under these circumstances, while in the FSCR, your firm will need to continue to be regulated by us for its UK business and will need to continue to follow our rules and relevant guidance at all times and also pay relevant FCA annual fees and levies.
Financial resilience survey
As outlined above, our core responsibilities include protecting consumers and enhancing the integrity of the UK financial markets. We know that financial stresses can put additional pressure on firms and so we are seeking to understand the effect Coronavirus (Covid-19) is having on firms’ finances.
We will be sending you a short survey in the next few days to understand the impact of Covid-19 on your business and future plans. We are surveying many of our UK firms as well as those EEA firms that have notified for the TPR and would appreciate your co-operation. Your response will help us obtain an accurate view of the impact of Covid-19 and will help us in our work to mitigate risks of harm to consumers, the market and competition within it.
To access previous TPR newsletters, please use the following links:
An update on the TPR from the FCA
Further information on the TPR - our approach to international firms
Contact us
If you have any queries, you can contact us via firm.queries@fca.org.uk or contact our Brexit Helpline 0800 048 4255 (from the UK) or +44 207 066 1000 (from outside the UK).
You can also stay up to date with the latest regulatory developments via our monthly Regulation Round-up newsletter.
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