On 18 December 2018, the FCA published a webpage concerning the draft Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019.
The explanatory memorandum to the draft statutory instrument explains that where EEA financial services providers do not enter the UK’s temporary permissions regimes in a no deal Brexit they may not be able to meet existing contractual obligations as performing regulated activities in the UK without these permissions could be a criminal activity. The purpose of the draft statutory instrument is therefore to provide a run-off mechanism to several UK temporary permissions regimes which will allow existing contracts to continue being serviced post-exit: the temporary permissions regime (TPR) for FSMA firms, the TPR for payments and e-money institutions, the temporary recognition regime for central counterparties and the temporary registration regime for trade repositories. This will mitigate the risk of a residual cliff-edge for providers that are not captured by the above temporary regimes.
Among other things the FCA webpage states:
“The FSCR [financial services contracts regime] will automatically apply to EEA passporting firms that do not notify us that they wish to enter the temporary permissions regime, but have pre-existing contracts in the UK which would need a permission to service. The FSCR will be time limited depending on the type of regulated activity being performed: it will apply for a maximum of 15 years for insurance contracts and 5 years for all other contracts. The Treasury can extend these periods, if necessary, based on a joint assessment by us and the PRA. Firms in the FSCR will have to keep authorisation in their home state and must notify us if their authorisation is cancelled or varied.
“The FSCR will provide two discrete mechanisms:
- Supervised run-off – for EEA firms with UK branches or top-up permissions in the UK, and firms who entered the temporary permissions regime but did not secure a UK authorisation at the end.
- Contractual run-off – for remaining incoming services firms.
“We will publish a consultation paper on these early next year.”