When passporting rights ended on 31 December 2020, European firms conducting regulated activities in the UK had to either stop doing business in the UK; or apply to remain under the ‘Temporary Permissions Regime’ (TPR). The TPR is in place to allow European firms to go through an orderly transition after Brexit, and continue their operations as regulated entities, while seeking full authorisation in the UK for the long term. Ultimately, firms in the TPR are required to submit an application to the relevant UK regulator during its allocated ‘landing slot’. Prior to the landing slot, firms are required to comply with certain regulatory requirements.

The FCA has provided specific examples of where firms might fail to meet the regulatory expectations, including[1]:

  • FSMA firms that miss their landing slot: only under very exceptional circumstances will the FCA allow for an extension and this has to be agreed with the regulator in advance of the deadline.
  • Firms that fail to respond to mandatory information requests: requests such as those made under section 165 of FSMA[2] are mandatory and firms that do not cooperate with the regulator may be found to be incapable of being effectively supervised.
  • Firms that do not intend to apply for full authorisation: unless the firm falls within any of the exemptions within UK law or policy exemptions set out by the FCA (such as not looking for full authorisation due to being merging with another entity and intending to cancel thereafter), then firms should not expand their business in the UK if they do not have a long term business plan and should consider their alternative options instead.
  • Firms whose authorisation application is refused or withdrawn: where firms fail to meet the Threshold Conditions[3]/Conditions for Authorisation, the regulator will refuse their application unless voluntarily withdrawn.

Firms are expected to maintain clear, transparent and open communications with the FCA before, during and after their TPR transition and during the application process. The FCA has set out specific courses of action that it may take in the event that firms fail to meet their standards, which include:

  • Removing the firm from the TPR.
  • Asking the firm to confirm that they have voluntarily stopped undertaking new business (i.e. on boarding new customers) or, if they do not voluntarily agree to this, seeking to use their powers to prevent firms from undertaking new business.
  • Directing a FSMA firm to apply in a landing slot sooner than the existing landing slot.
  • For payments and e-money firms, requesting the firm to specify a date when they will cease to engage in new business – if they fail to do so, the FCA may specify the date.

Recent FCA comments and actions have highlighted the need for firms to make sure they meet all of the relevant regulatory requirements, and in particular Emily Shepperd’s comments highlight that the “UK is open for business, but not to firms who do not meet our regulatory expectations”[4].

The FCA has now, for the first time, publicly demonstrated its willingness to use these powers, and in particular have issued four final notices (the Final Notices)[5] in respect of firms that, despite multiple opportunities, failed to respond to mandatory information requests. As a result of these failures, the firms have all had their temporary permissions cancelled. It is important to note that, following the Final Notices, the firms that have had their permissions cancelled can no longer conduct regulated business in the UK and may be committing a criminal offence if they do so.

The Final Notices highlight some key points, which include that the firms were deemed not fit and proper and failed to satisfy a number of the Threshold Conditions.[6] In particular, the FCA deemed that the firms were not suitable persons and that they could not be effectively supervised.

Key points for firms to takeaway

The Final Notices identify a number of key takeaways for firms including:

  • Firms in the TPR need to carefully consider the consequences of failing to communicate with the FCA in an open and cooperative manner when being asked for information. In particular, failing to respond to information requests from the FCA may result in a decision notice being issued, and, the consequences of this are extensive, both in the UK and in other jurisdictions.
  • Furthermore, firms should be considering their obligations under Principle 11 of the FCA Principles for Business and proactively communicating with the FCA in a prompt and comprehensive manner which assists in demonstrating the firms’ ability to remain willing, ready and organised.
  • Demonstrating the ability to be supervised and that the firm remains a suitable person is key throughout all communications with the FCA. This is best demonstrated through maintaining an open channel with the FCA, and communicating with the FCA in an open manner.
  • When the firm is submitting an application for authorisation in order to exit the TPR, demonstrating that the firm is ready, willing and organised when the authorisation application is submitted is key. This may include seeking advice about the requirements that the firm needs to comply with in order to submit a comprehensive application, as well as embedding the requirements into the firm’s compliance framework.

The FCA has also consulted on its “use it or lose it[7]” power to address those instances where firms that have been already authorised are not actually using their permissions, which could result in harm to consumers and the market itself. Firms within the TPR will need to carefully consider what permissions they apply for to make sure their permissions are aligned to the activities that are being conducted in the UK.

As the FCA continues to focus on the permission profiles of firms and streamline its decision making processes, it is likely that additional scrutiny will be placed on firms, both those in the TPR and those outside of the regime.

 

[1] https://www.fca.org.uk/brexit/temporary-permissions-regime-tpr/firms-do-not-meet-our-expectations

[2] s165 Financial Services and Markets Act 2000

[3] COND 2.2

[4] FCA confirms approach to European firms temporarily operating in the UK | FCA

[5] Arumpro Capital Limited FN; Esfera Capital, Agencia de Valores, S.A. FN; Evest Limited FN; INZMO Europe GmbH FN.

[6] COND 2

[7] See CP21/28 New cancellation and variation power: Changes to the Handbook and Enforcement Guide

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