United Kingdom (and EU regulation)

FCA launches consultation on the regulation of international firms

By Simon Lovegrove (UK) on September 23, 2020 Posted in Brexit, United Kingdom

On 23 September 2020, the FCA issued Consultation Paper 20/20: Our approach to international firms (CP20/20). CP20/20 is relevant to EEA firms that intend to seek authorisation in the UK in the future, including those entering the temporary permissions regime (TPR), as well as firms from non-EEA countries that have applied or intend to apply for authorisation in the UK, or are already authorised in the UK.

Key points in CP20/20 include:

CP20/20 focuses on how the FCA ensures that international firms meet the minimum standards for authorisation, the threshold conditions. However, international firms should also be aware of the FCA’s wider approach to supervising the firms it regulates, as set out in the FCA’s ‘Our Approach to Supervision’ document.
When assessing an international firm against the relevant minimum standards, the FCA will have regard to whether there is a heightened potential to cause harm from the activities being undertaken from a branch and whether the risks can be adequately mitigated. It will also consider the nature and scale of the activities the international firm intends to conduct from outside the UK.
As part of the overall assessment of an international firm against the relevant minimum standards, the FCA will consider the international firm’s potential to cause harm (risks of harm) and the level of these risks. In CP20/20 the FCA describes 3 potential risks that are more relevant for international firms (retail harm, client assets harm and wholesale harm) and provides examples of mitigants to these risks.
Across these 3 types of risks of harm, the FCA will consider home state regulation and supervision where relevant, and the level of international cooperation. This includes information sharing and the firm’s recovery and wind-down planning if applicable. The FCA will also consider the firm’s business model, personnel and systems.
If having conducted the assessment, the FCA takes the view that an international firm meets the minimum standards, it will authorise the firm. The FCA may consider imposing limitations or requirements as part of any approval, for it to be satisfied that the firm will meet minimum standards on an ongoing basis.
In CP20/20 the FCA describes some of its general expectations which are particularly relevant to international firms operating from a UK branch, though they may also be relevant for UK subsidiaries with overseas parents. The FCA discusses the nature of a firm’s operations, personnel and decision making, systems and controls, and home state jurisdiction. When covering personnel and decision making the FCA states, among other things, that although decisions will be taken on a case-by-case basis, the FCA would typically expect senior managers who are directly involved in managing the firm’s UK activities to spend an adequate and proportionate amount of their time in the UK to ensure those activities are suitably controlled. The FCA recognises that individuals at an international firm who have responsibilities for the UK branch that are purely strategic may not be based in the UK.

The deadline for comments on CP20/20 is 27 November 2020.