We have previously issued blogs on the financial services contracts regime (FSCR):
- FCA webpage – the financial services contracts regime
- Draft Financial Service Contracts (Transitional and Saving Provision) (EU Exit) (No. 2) Regulations 2019
- Update on Brexit statutory instruments
The FSCR is available for firms with pre-existing contracts in the UK that would require a permission to service, which:
- do not submit a notification to enter into the temporary permissions regime (TPR); or
- are unsuccessful in securing, or do not apply for, full authorisation through the TPR route (and leave the TPR).
The FSCR will not allow firms in the regime to undertake any new business in the UK. The FSCR would provide that a firm is able to carry on a regulated activity only where it is necessary for the performance of a pre-existing contract (which is a contract made before exit day, where a firm enters the FSCR on exit day), along with certain other specified activities.
On 8 January 2019, the FCA published Consultation Paper 19/2: Brexit and contractual continuity (CP19/2). In chapter 2 of CP19/2 the FCA sets out further details of the FSCR and the two mechanisms within it (supervised run-off and contractual run-off). In summary, the FCA’s proposed approach is to require SRO firms to comply, in respect of their UK business, with:
Chapter 3 of CP19/2 sets out how the FCA’s rules should apply to firms in the FSCR in respect of their UK activities. The aim of the FCA’s proposals in chapter 3 is to preserve the status quo as much as possible (in line with its approach for firms in the TPR). Generally, supervised run-off firms (SRO firms) will need to continue to comply with the rules which currently apply to them, either in the UK or in their home state.
The FSCR will be time limited depending on the type of regulated activity being performed. It will apply for a maximum of 5 years for all contracts except for insurance contracts and for a maximum of 15 years for those contracts. HM Treasury can extend these periods.
The FSCR will apply automatically to these firms. It will allow them to continue to service UK contracts entered into before exit day or before exiting the TPR for a limited period, provided that they can meet the conditions for the FSCR.
- all FCA rules which currently apply to them;
- all FCA rules which implement a requirement of an EU Directive which are currently reserved to the SRO firm’s home state and which the FCA does not currently apply to EEA firms (home state rules). The FCA intends to accept ‘substituted compliance’ for these rules. If firms can demonstrate they continue 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) they will be deemed to comply with the FCA’s rules; and
- certain additional FCA rules which the regulator believes are necessary to provide appropriate consumer protection or relate to funding requirements.The deadline for comments on CP19/2 is 29 January 2019.
Contractual run-off firms (CRO firms) will be exempt from the general prohibition. Such firms will be required to remain authorised by their home state in order to benefit from the CRO exemption. Rules in the firm’s home state may continue to apply to its UK business. The FCA is also proposing that CRO firms pay a special project fee.
The deadline for comments on CP19/2 is 29 January 2019.