FCA to reopen temporary permission notification window as end of Brexit transition period approaches

Nausicaa Delfas, Executive Director of International at the UK Financial Conduct Authority (FCA), today commented on the approaching end of the Brexit transition period.

The UK left the EU on January 31, 2020, and the UK is nearly halfway through the transition period, which will end about 6 months’ time. From that point, EU law will no longer apply and firms will need to be ready.

The FCA has been working to undertake all the preparations so that it can limit the potential for disruption.

Together with the Government and the Bank of England, the FCA seeks to ensure that there will be a robust legal regime on day 1 by onshoring EU law to the UK statute book and our rule book, and by clarifying through use of the Temporary Transitional Power which onshoring changes firms will have to comply with from 1 January next year and which ones they will have until March 2022 to implement.

The FCA has introduced arrangements for temporary permission that will allow EEA firms to continue providing services and EEA funds to continue to be marketed in the UK once passporting ends, provided that the relevant notifications are made. Over 1,000 firms and over 600 fund managers have already notified the FCA.

The regulator will reopen the notification window on 30 September. From 2021, these EEA firms will be called to apply for permanent authorisation to replace their temporary permission.

The FCA plans to consult later this year on the approach it will take when it assesses applications from overseas firms. And for those EEA firms that do not notify for a temporary permission or that do not obtain a permanent authorisation in due course, the Government has legislated to allow them to continue to service pre-existing contracts in the UK.

Equivalence decisions have not yet been made, and negotiations are ongoing. The outcome will impact on some of the post transition period risks – for example, deeming each other’s regulatory frameworks as equivalent is the best way to mitigate risks of disruption from overlapping Share Trading Obligations and Derivatives Trading Obligations.

Ms Delfas notes that there are risks are outside of the FCA’s control. For instance, where EU Member States had individually passed laws to smooth a possible ‘hard’ exit, some of these laws have now lapsed and there is no guarantee that new laws will be issued.

“So, if you intend to continue servicing customers in the EEA from 1 January 2021, you will need to have adapted your business according to the local laws and local regulators’ expectations by that date, speaking to local regulators as appropriate, and obtaining permissions and repapering contracts where necessary, whilst treating customers fairly throughout”, Ms Delfas says.

“In short, my message to you is that we all need to continue to prepare for a range of scenarios, to be ready for the end of the year”, she concluded.