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For the attention of the Managing Director/Chief Executive
The UK’s transition period came to an end on the 31 December 2020 and as your firm had notified us and was passporting into the UK, it is now in the UK’s temporary permissions regime (TPR).
Your firm is now regulated by us for its UK business.
Being in the TPR brings with it obligations including following our rules and relevant guidance at all times. Your firm will also now be subject to the full range of our powers under the Financial Services and Markets Act 2000. There is information about being regulated by the FCA in this email, along with a summary of the rules and relevant guidance.
Firms in the TPR will also be charged fees and levies in the fee year 2021/22. There is more information regarding fees in this email.
In addition, we will be sending your firm at least three information requests in the near future:
- financial resilience survey
- TPR attestation
- information to calculate periodic fees
The first two of these will be made under section 165 of the Financial Services & Markets Act (FSMA) 2000 and your firm must complete these in full and within the timescales given. Please note that we may exercise our powers under FSMA where firms do not comply which could result in us taking action, including to remove your firm’s temporary permission. There is more information regarding these information requests in this email.
Your firm should also now be considering its longer-term plans for continuing to access the UK market and whether it will be applying for full authorisation in the UK.
In due course, we will allocate your firm a period of time (a ‘landing slot’) during which it can apply for full authorisation in the UK.
If your firm does not submit its application during its landing slot, we propose to move your firm into the supervised run-off (SRO) mechanism within the financial services contracts regime (FSCR) and will expect it to run-off its existing UK business as quickly as possible. Please note that if your firm does not submit its application for full authorisation during its landing slot it will not be able to stay in the TPR as this is only a temporary regime.
There is information regarding landing slots and applying for full authorisation in this email.
If your firm has changed its plans, but has existing UK business to run-off, it should cancel its temporary permission and enter SRO from where, as above, it can run-off any UK business as quickly as possible.
Lastly, if your firm does not have any UK business it should consider applying to cancel its temporary permission.
If you have any queries, you can contact us.
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. We also provide extensive guidance on our expectations.
The firms that we regulate and their staff are responsible for ensuring that they act in accordance with our rules. We expect firms, including those in the TPR, and their staff 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
Now that your firm is in 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.
In this section, we have set out a summary of the main rules which apply to firms in the TPR. Please note that this section is only a summary and you should ensure your firm understands our rules fully and its obligations under them.
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. It is important to let us know anything relating to your firm of which we would reasonably expect notice. For example, you must tell us about plans to grow/change your UK business, your firm’s financial or operational resilience, changes in group structure or ownership or the loss of your firm’s authorisation in its home state.
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 the removal of your firm’s temporary permission.
General approach to the rules in our Handbook
In respect of your firm’s UK business, it must comply with:
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all FCA rules which applied to your firm while it was passporting into the UK. See GEN 2.2.26R(1) in our Handbook.
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in addition, all FCA rules which implement a requirement of an EU directive which were reserved to the firm’s home state and which therefore did not apply to EEA firms in the UK. Here we will accept ‘substituted compliance’ in respect of these rules. If your firm can demonstrate that it continues 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) it will be deemed to comply with our rules. See GEN 2.2.26R(2) in our Handbook.
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certain additional FCA rules which are necessary to provide appropriate consumer protection or relate to funding requirements, see below for further details of these rules and see the list in GEN 2.2.37G(2) in our Handbook.
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
If your firm conducts investment business or insurance distribution and receives or holds client assets, to ensure these are protected and to enable us to effectively supervise firms in the TPR, we require that:
- your firm continues to comply with client assets rules, see our CASS sourcebook (which would be subject to substituted compliance with your firm's home state safeguarding rules
- you report your client assets arrangements to us by email to tpcar.cass@fca.org.uk at the required frequency and submission deadlines (see CASS 14.3, CASS 14 Annex 1R and CASS 14 Annex 2G)
- 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. This should be submitted to us by email to tpcar.cass@fca.org.uk (see CASS 14.4)
- firms disclose certain information to UK clients relating to the treatment of their client assets in the event of the firm’s failure (see CASS 14.5). 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 TPR are prohibited from holding client assets (see CASS 14.6)
Full details of these requirements are set out at CASS 14 in our Handbook.
Status disclosure
Your firm will need to 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.
Your firm has until the end of March 2021, to make these status disclosure wording changes.
Disclosure on compensation scheme coverage
Firms in the TPR should 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. This includes the situation were that coverage is removed from the UK activities of your firm now that it is in the TPR.
Your firm should also provide, at a customer’s request, information concerning your firm’s inclusion (or not) in any compensation schemes, including your 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.
If your firm does not have a UK branch, there are no requirements in this area for firms in the TPR.
This section sets out details of the FCA fees and levies that firms in the TPR will be required to pay now that they are in the TPR.
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
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.
Further details are included in Chapter 7 of Consultation Paper CP18/29 and Chapter 7 of our Policy Statement PS19/5. 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.
If your firm has a UK branch, the FSCS will cover your firm’s activities while it is in the TPR and your firm will be required to continue 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. If your firm is one of these, it will continue to pay into the FSCS during its time in the TPR.
If your firm does not have a UK branch, your UK customers 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 your firm 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.
If your firm does not have a UK branch, it will now 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 now the EU-UK transition period has ended.
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.
We will be sending your firm three information requests in the near future. The first two of these below will be made under section 165 of the Financial Services & Markets Act (FSMA) 2000 and your firm must complete these in full and within the timescales given. Please note that we may exercise our powers under FSMA where firms do not comply which could result in us taking action, including to remove your firm’s temporary permission.
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.
Your firm will now be included in our financial resilience surveys which help us to understand the impact of Covid-19 on your business and future plans.
TPR attestation
We will also be sending you an attestation which will ask you to confirm formally that your firm understands its obligations while in the TPR and asking for contact details for the individuals at your firm who we should contact with regards to specific areas such as compliance with our rules, compliance with our client asset rules, fees and invoices and who we should contact with regards to your firm’s application for permanent authorisation in the UK.
Information to calculate periodic fees
Firms in the TPR with a UK branch will be charged full periodic fees in the fee year 2021/22. These fees will be based on the permissions held by a firm on 1 April 2021. We will write to your firm shortly with details of the information we will need to calculate its fees.
Firms in the TPR without a UK branch will not need to provide any information for the calculation of their fees, as for 2021/22 they will only pay the minimum fee that applies to their permissions.
Note: If you notified for the TPR on behalf of more than one firm, you may receive more than one copy of each information request. You should complete all of the information requests that you receive.
In due course, we will allocate your firm a period of time (or ‘landing slot’) during which it can apply for full authorisation in the UK, if your firm requires UK authorisation. This will take the form of a formal direction from us to your firm telling it when it needs to submit its application for permanent authorisation.
If your firm does not submit its application during its landing slot, it will automatically be moved into the supervised run-off (SRO) mechanism within the financial services contracts regime (FSCR).
Once in SRO, your firm will be unable to conduct new business in the UK and will be expected to run-off its existing UK business as quickly as possible.
Our approach to international firms
We would draw your attention to our recent consultation on our approach to international firms. This is an important consultation and will be relevant to firms in the TPR.
In particular, we would stress 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 also assess the degree of cooperation between the FCA and a firm’s home state supervisor. This includes the existence of cooperation agreements and the ability to exchange confidential information.
We will also assess whether a firm’s UK operations are appropriately resourced (whether financially or otherwise) to avoid the risk that the firm 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 permanent 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 permanent authorisation in the UK here. You can also find our Approach to Authorisation here.
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 in November 2020 we consulted on revising our authorisation application fees. The consultation closes on 22 January 2021 and subject to feedback we intend to implement the revised fees from 1 April 2021.
If you have any queries, you can call us on 0300 500 0597 from the UK, or +44 207 066 1000 from abroad (we are open Monday, Tuesday, Wednesday and Friday 9am to 5pm and Thursday 9.45am to 5pm) or via email at firm.queries@fca.org.uk.
You can also stay up to date with the latest regulatory developments via our monthly Regulation Round-up newsletter.
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