All passporting rights will be lost when the UK leaves the European single market on 31 December 2020. This could cause issues for:
- UK-authorised firms that currently passport their authorisations into Europe.
- EEA-authorised firms that currently passport their authorisations into the UK.
On 31 December, these firms need to either stop operating in the countries they passport into or gain separate authorisation there.
The UK Government was kind enough to provide EEA-authorised firms with a Temporary Permission Regime (TPR) allowing EEA-authorised firms to take on new business within the scope of their permissions and under
the Financial Services Contract Regime (FSCR), allowing EEA-authorised firms to run off existing contracts and to be able to continue as is during the TPR, which ends on 31 March 2022. Sadly, the EU has not reciprocated by putting in place similar arrangements. UK-authorised firms passporting into the EU still do not know whether they will be allowed to continue operating as they do now. Without a clear framework in place, UK-authorised firms have been left in a state of confusion about what to do with regard to their clients in Europe.
Below are the top five tips to ensure that financial institutions remain compliant post Brexit:
- EEA-authorised firms taking on new clients/businesses in the UK need to notify the FCA of their intention to benefit from the TPR by 30 December 2020. For further information, visit: https://www.fca.org.uk/brexit/temporary-permissions-regime-tpr and https://www.fca.org.uk/brexit
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- UK-authorised firms should find out the post Brexit specifics for every EU country where they do business – countries differ significantly from one another. Some EEA authorities have granted a TPR for a number of months post the transition period, other EEA states have decided against any TPR and in these cases, the UK-authorised firm may need to apply for a license locally if they wish to continue existing business and/or targeting/onboarding new clients in those countries.
- Based on the current and future plans of where UK-authorised firms intend to conduct their business, it may make sense to incorporate an entity somewhere in the EU, get it locally regulated and utilise that to benefit from the passporting regime across the rest of the EU. This would eliminate the need to adhere to each member state separately which could be cumbersome and very costly.
- UK-authorised firms considering relying on the reverse solicitation exemption should review ESMA’s Q&A Chapter 13 (page 111) in order to understand the requirements. https://www.esma.europa.eu/sites/default/files/library/esma35-43-349_mifid_ii_qas_on_investor_protection_topics.pdf
- If anything is unclear, look at the relevant regulators’ websites. EU regulators understand that the current situation is putting a lot of firms under pressure, and many regulators in the EU have a designated page on their website on Brexit and its implications locally. If the information that you are looking for is not available on the website, contact the regulators directly. They are all extremely helpful and are there to assist the market in this difficult situation.
Remonda Kirketerp-Møller is the Founder and CEO of RegTech firm, Muinmos.