UK temporary permissions regime to allow EEA financial services firms and non-UK CCPs to operate in the UK post-Brexit
Under the proposed UK temporary permissions and recognition regimes, eligible firms providing cross-border financial and market services into the UK will not need to obtain permanent authorisation or recognition by the Bank of England until the end of the implementation period which has been agreed in principle as part of the UK’s Withdrawal Agreement with the EU.
HM Treasury and the Bank of England yesterday provided further detail on the plans announced in December 2017 to allow European Economic Area (EEA) firms and non-UK central counterparties (CCPs) to continue operating in the UK for a limited period after withdrawal under a new temporary permissions and recognition scheme, while they seek authorisation or recognition from UK regulators.
The UK Government has proposed a draft statutory instrument (SI) that will, subject to parliamentary approval, introduce a temporary permissions regime for EEA firms that currently provide financial services in the UK under an EU “passporting” regime. The Government has also laid before Parliament a separate draft SI that will, subject to parliamentary approval, establish a temporary recognition regime for non-UK central counterparties (CCPs) in respect of clearing activities.
In order to be eligible for the temporary permissions and recognition regimes, the following requirements must be met:
- EEA firms must be already authorised to carry on a regulated activity in the UK under the EU passporting regime and inform the relevant regulator before exit day of their intention to enter into the regime
- Non-UK CCPs must be already permitted to offer clearing services in the EU and inform the Bank of England before exit day of their intention to provide clearing services in the UK.
Eligible firms will be subject to the same obligations and supervisory framework as if they were authorised by the Prudential Regulation Authority (PRA) or Financial Conduct Authority (FCA) under Part 4A of the Financial Services and Markets Act 2000. Firms and CCPs that are authorised under the temporary permissions and recognition regimes may benefit from the following:
- Firms will have permission to provide services in the UK or continue to operate through a branch for up to three years, which can be extended by HM Treasury in increments of twelve months
- CCPs will be deemed to be recognised to provide clearing services in the UK for up to three years, which also can be extended by HM Treasury in increments of twelve months
- Financial Services Compensation Scheme (FSCS) membership will be extended to all deposit-takers and insurers in the regime with a branch in the UK.
- EEA insurers that passport their services in the UK without a branch will also retain their existing FSCS membership.
The Bank of England will publish further guidance on the temporary permissions and recognition regime once the SIs have been approved by Parliament, including the notification process for entry. While the Government intends the temporary measures to cover the duration of the implementation period which has been agreed in principle as part of the UK’s Withdrawal Agreement with the EU, the SIs should take effect even if the Withdrawal Agreement is not signed. However, the SIs will be enacted under the European Union (Withdrawal) Act 2018, which means they may still change if the Withdrawal Act itself is further amended by Parliament.