On 28 February 2019, the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019 (FSCR) statutory instrument (SI) was made law. The SI establishes a Financial Services Contracts Regime to ensure that those EEA firms that do not enter the temporary permissions regime (TPR), and those that exit the TPR without UK authorisation, are able to wind down their UK regulated activities in an orderly manner.
Further details of the Financial Services Contracts Regime can be found in HM Treasury’s Explanatory Information Note.
The Bank of England’s expectation is that the FSCR will function as a back-stop to the TPR to mitigate contract continuity risks. The regime provides limited permissions for firms to perform existing contracts but, unlike the TPR, does not allow a firm to carry out regulated activities in relation to new contracts, except where necessary to service pre-existing contracts. Firms falling within the scope of the regime will be expected to run-off, close out, or transfer obligations arising from contracts that exceed the time limit of the regime (15 years for insurance contracts and 5 years for other contracts) prior to the end of the regime.
The PRA has now published a Policy Statement outlining the changes to the PRA Rulebook required to operationalise the Financial Services Contracts Regime, and the Bank’s broader approach to Financial Services Compensation Scheme (FSCS) protection.
Firms are encouraged to engage with the Bank and PRA on their authorisation processes in their planning.