FCA proposes post-Brexit disclosures for firms in Temporary Permissions Regime
The status disclosure is set to enable consumers to understand the nature of the firm they are dealing with, and the protections which are available to them.
The volume of Brexit-related publications by the UK authorities is growing, as the Financial Conduct Authority (FCA) has earlier today published another consultation paper concerning regulatory changes and requirements in case the UK leaves the European Union without an implementation period in place.
Let’s recall that, in October this year, the FCA published a consultation paper regarding Brexit. In the new paper, the FCA outlines questions that were not consulted on in that initial paper.
The document issued in October detailed the implementation of a temporary permissions regime (TPR) for inbound passported firms and investment funds. The TPR is set to enable them to continue their activities in the UK for a limited period after Brexit. Generally, TP firms – EEA firms passporting into the UK under FSMA, and Treaty firms that notify the relevant regulator of their wish, will need to continue to comply with the rules which currently apply to them based on the activities they carry on, either in the UK or in their home state.
In the new consultation paper, inter alia, the FCA sets out proposals about the application of certain of its rules to firms in the TPR (TP firms). These proposals include ones concerning disclosures of TP firm’s authorisation status.
The FCA is proposing that firms in the TPR should include specific disclosure in their letters (or electronic equivalents) to retail clients of their authorisation status.
EEA branches must already make a status disclosure, and so they will need to change the existing wording to reflect the firm’s status because of the TPR. For EEA services firms, disclosure is only currently required where the firm indicates it is an authorised person, so disclosure in all letters (or electronic equivalents) will be a new requirement.
The FCA notes that disclosure of the firm’s status as a TP firm, and informing consumers where they can find out more about TPR, is important given the significant change to TP firms’ regulatory status. This is because of the loss of passporting rights and their deemed temporary permission under Part 4A of FSMA, and the potential for home state protections and supervision to fall away following exit day. This will enable consumers to understand the nature of the firm they are dealing with, and the protections which are available to them.
The FCA also propose that EEA services firms should include disclosure that the consumer protections which apply may be different from those in the UK, given that our rules will allow them to continue to comply with the home state implementation of many rules (rather than the UK implementation of those rules).
The FCA proposed the following wording for solo-regulated TP firms is:
“Deemed authorised and regulated by the Financial Conduct Authority. [For EEA services firms: The nature and extent of consumer protections may differ from those for firms based in the UK.] Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.”
The wording the FCA intends to use for dual-regulated TP firms is:
“Authorised and regulated by [name of the overseas regulator of the overseas firm in the jurisdiction of that overseas firm’s registered office (or, if it has no registered office, its head office)]. Deemed authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. [For EEA services firms: The nature and extent of consumer protections may differ from those for firms based in the UK.] Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.”
In each case, the wording for firms with a top-up permission will include different text to reflect that top-up permission, explaining that firms are authorised by the FCA or PRA (as appropriate) and with deemed variation of permission.
The FCA also proposes to extend the requirements that a firm must not indicate or imply that it is authorised, regulated or otherwise supervised by us or the PRA in respect of business for which it is not, so that it also applies to EEA services firms in the TPR (which are not currently subject to this rule), and to retain these duties for EEA branches in the TPR.
Comments are accepted by December 21, 2018.