The financial services contracts regime

The temporary permissions regime[1] (TPR) will enable relevant firms and funds which passport into the UK to continue operating in the UK at the end of the transition period.

Alongside the TPR, the Government committed to introduce further legislation, to ensure existing contractual obligations not covered by the TPR can continue to be met. The Government made legislation[2] for the financial services contracts regime (FSCR) which will provide a limited period of time during which EEA passporting firms can continue to service UK contracts entered into prior to the end of the transition period, in order to wind down their UK business in an orderly fashion.

This legislation will be relevant where EEA firms which passport into the UK to carry on a regulated activity here fail to notify us that they wish to enter the TPR or are unsuccessful in securing authorisation at the end of it, but still have regulated business in the UK to run off. A similar regime will apply to firms based in the EEA which used the electronic commerce exclusion to provide information society services in the UK before the end of the transition period.

The FSCR is created solely to allow EEA firms to run off existing UK contracts and conduct an orderly exit from the UK market. EEA firms within this regime will not be able to write new UK business. They will be limited to regulated activities which are necessary for the performance of pre-existing contracts, plus other specific activities provided for by the legislation. EEA firms which wish to continue doing new business in the UK after the end of the transition period and those firms wishing to have more flexibility in the regulated activities they are permitted to carry on will need to enter the TPR and secure a UK authorisation. In addition, EEA firms managing UK authorised funds will not be able to continue to manage those funds under FSCR after the end of the transition period. Those firms should notify the FCA in order to enter the TPR. The same applies to trustees or depositaries of such funds.

The FSCR will automatically apply to EEA passporting firms that do not notify us that they wish to enter the TPR, but have pre-existing contracts in the UK which would need a permission to service. The FSCR will be time limited depending on the type of regulated activity being performed: it will apply for a maximum of 15 years for insurance contracts and 5 years for all other contracts. The Treasury can extend these periods, if necessary, based on a joint assessment by us and the PRA. Firms in the FSCR will have to keep authorisation in their home state and must notify us if their authorisation is cancelled or varied.

The FSCR will provide 2 discrete mechanisms:

• Supervised run-off (SRO) – for EEA firms with UK branches or top-up permissions in the UK which do not enter the TPR, and for EEA firms which entered the TPR but did not secure a UK authorisation at the end
• Contractual run-off (CRO) – for EEA services firms with no UK branch

Following our consultation paper[3] (CP19/2), on 28 February 2019 we published a policy statement[4] (PS19/5) setting out how we will implement the FSCR. The rules that apply to firms in SRO are mainly those that apply to firms in the TPR. These are set out in the Exiting the European Union: Temporary Permission and Financial Services Contacts Instrument 2019[5]. However, GEN 4 Annex 1C set out specific rules for the status disclosure of SRO firms.

While the FSCR regime applies automatically to firms within its scope, firms in CRO must, as soon as practicable following the end of the transition period, notify the FCA that the firm is carrying on a regulated activity in the UK.

Firms in CRO must also notify each party to any pre-existing contracts that the firm is an exempt person and is not regulated by the FCA or the PRA as soon as reasonably practicable after the end of the transition period. The notification must also include any material change in the protection of client assets for the contract, the dispute resolution mechanism that applies in connection with the contract, and information about the compensation scheme relating to the contract.