On 13 December 2018, the City of London Law Society (CLLS) published its response (dated 12 December 2018) to FCA Consultation Paper 18/29: Temporary permissions regime for inbound firms and funds (CP18/29).
Broadly speaking the CLLS welcomes the pragmatic approach the FCA proposes to take, but raises a technical issue concerning the protection of client money and assets where the UK branch of such an EEA firm holds such money or assets. Essentially, the CLLS is concerned that the FCA’s proposed approach will not provide adequate protection for client money and client assets in circumstances where these are held by a UK branch of a firm within the temporary permissions regime (TP firm). This is because of a difference that will arise in the handling of insolvency proceedings for investment firms and credit institutions in the absence of an implementation period. In a post no-deal Brexit insolvency proceeding, assets held by a UK branch of a TP firm may fall to be analysed under UK insolvency proceedings, and assets held in the UK would ordinarily be considered under applicable UK property laws.
Whilst appreciating that the FCA is not proposing in CP18/29 to amend its Handbook for electronic money institutions and payment institutions, the CLLS warns that issues concerning cross-border insolvency could also arise in this sector. The CLLS suggests that the FCA review its Approach Document (September 2017) to:
- ensure that it includes appropriate material requiring appropriate disclosures about the operation of non-UK insolvency and client protection regimes; and
- ensure that the assets held outside the EEA by the UK branch of a TP firm are subject to effective safeguarding methods, including taking steps to ensure that such accounts are acknowledged by the relevant institutions as being used for that purpose alone and thus not to be considered assets of the TP firm.