Temporary permissions regime

Introduction

The transition period has ended and the Temporary Permissions Regime (TPR) is now in effect.

Passporting rights have now ceased and EEA firms who were formerly operating through a passport in the UK under the European passport framework now require a Part 4A permission under the Financial Services and Markets Act (FSMA) to be able to continue carrying out regulated activities who were formerly operating through a Freedom of Establishment passport in the UK.

The aim of the TPR is to allow firms that wish to continue carrying out business in the UK in the longer term to operate in the UK for a limited period while they seek authorisation from UK regulators.

Only firms that have made (and not withdrawn) a valid notification of their wish to enter the TPR before the PRA notification window closed, or have submitted (and not withdrawn) an application for permission under Part 4 of FSMA (or for variation of pre-existing ‘top-up’ permission) before the end of the transition period, will have entered TPR.

Under the TPR, a firm that was formerly authorised to carry on regulated activities in the UK through Freedom of Establishment (FOE) or Freedom of Services (FOS) passporting obtains a deemed Part 4A permission to carry on those activities for a maximum of three years from the end of the transition period, subject to HM Treasury’s power to extend the duration of the regime by increments of twelve months. A passporting firm that already had a top-up permission obtains a deemed variation of that permission.

The deemed Part 4A permission means that a firm will continue to be an authorised person for the purpose of UK law. The deemed permission will cover those activities that the firm was permitted to carry on in the UK via passporting immediately before the end of the transition period.

The TPR will support the PRA and FCA’s aim of ensuring a smooth and orderly authorisation process, in support of our objectives. On that basis, we expect firms to engage with the regulators proactively during their time in TPR.

What this section contains

This section contains information on: 

• Exit from TPR
• Extension of statutory deadlines
• Regulatory requirements for firms in TPR
• Threshold conditions for firms in TPR
• Status disclosure to retail clients
• Transitional relief for firms in TPR
• Financial Services Compensation Scheme (FSCS) Protection and the TPR
• Senior Managers and Certification Regime and the TPR
• Solvency II approvals
• Gibraltar firms
• FMIs

In addition to this update, firms are also encouraged to read:

• Legislation implementing the TPR Opens in a new window Opens in a new window
• The Bank’s July statement on the Temporary Permissions and Recognition Regimes
• The Bank’s news release and consultation package published on Thursday 25 October 2018
• Information published by the FCA in relation to TPR Opens in a new window Opens in a new window

Exit from TPR

A firm’s deemed permission in TPR can end:

• when your application for Part 4A permission is determined – either approved or rejected
• when we exercise our own initiative power to cancel the deemed permission (or, if you are a firm with a deemed variation, to vary the permission so there are no longer any activities covered by the deemed variation).  This includes our use of the power – provided to us in the TPR legislation - to cancel your deemed Part 4A permission under TPR if you do not submit an application within the first two years of TPR; or 
• 3 years from the end of the transition period (extendable by HM Treasury by 12 month increments). 

If your Part 4A authorisation application is rejected after you enter into the TPR, you will be expected to run-off your existing UK regulated activity and you will be placed in the Financial Services Contracts Regime (FSCR) to allow you to wind down your UK business in an orderly manner. We note the Government’s commitment in December 2017 available in ‘Financial Services Update: Written statement – HCWS382 Opens in a new window Opens in a new window’.

If you are a firm in TPR and wish to undertake further regulated activities beyond the scope of your permission, you will need to submit an application to vary your permission.

Extension of statutory deadlines

The legislation that delivered the TPR has also temporarily extended statutory time limits for UK regulators to process authorisation applications from previously passporting EEA firms from six months (for complete applications) and twelve months (for incomplete applications) to three years from the end of the transition period. 

The extension of statutory deadlines took effect immediately and applies to applications already existing when the legislation was made (including ones where the statutory deadline would have expired before the end of the transition period) as well as those submitted after the making of the TPR legislation. The extension of statutory deadlines will allow us and the FCA to manage the volume of authorisation applications associated with EU withdrawal in a smooth and orderly manner, in support of our statutory objectives, including during the transition period as necessary.

Regulatory requirements for firms in TPR

As noted in the Bank’s news release in July 2018, we have the same powers in relation to firms in TPR as for other firms with a Part 4A permission. These include powers to impose requirements, and to vary or revoke permissions. Firms are subject to the same obligations and supervisory framework as if they were a Part 4A authorised firm.   

Firms in TPR with an establishment in the UK are required to comply with the same rules that apply to other third country branches (subject to any applicable transitional relief). These are available to view in the PRA Rulebook Opens in a new window Opens in a new window Opens in a new window.

For firms in TPR without a branch in the UK a more limited set of rules apply. These are:

i. Rules that would already apply to third country firms even if they did not have a UK branch (including rules in the Fundamental Rules, Auditors, Change in Control, Close Links, Fees, General Provisions, Information Gathering, Interpretation, Notifications and Use of Skilled Persons Parts of the PRA Rulebook)

ii. Certain FSCS rules (as set out in the FSCS section below)

iii. The Senior Managers and Certification requirements that apply to third country branches (with amendments - see SM&CR section).

The PRA has amended the definition of non-Directive insurer so that it does not capture insurers in TPR operating in the UK without a branch. Instead, the set of rules noted above will apply for those firms.

Threshold Conditions for firms in TPR

Firms were not required to demonstrate that they satisfy Threshold Conditions (TCs) in order to enter into the TPR and receive a deemed Part 4A permission under the TPR. However, like other Part 4A authorised firms, if you are in TPR you are required to notify us if you become aware (or have information that reasonably suggests) that you have failed to satisfy one or more TCs, may have done so, or may do so in the foreseeable future. If it appears to us that you are in the TPR and are failing, or likely to fail, to satisfy the TCs, it will be open to us to take appropriate action, including using our powers to impose requirements or to restrict or cancel your firm’s deemed Part 4A permission.

In order for the PRA to approve an application for Part 4A permission it must be satisfied that a firm satisfies, and will continue to satisfy, the TCs. This requirement applies to firms whose applications are being considered while they are in the TPR as to all other firms.

Status disclosure to retail clients

Firms in TPR are required to include specific status disclosure wording in their communications with retail clients, both written and electronic, to indicate that they are in the regime. However, the PRA previously granted firms in TPR a 3 month transitional relief (ending on 31 March 2021) in respect of the requirement to use specific, bespoke wording for their status disclosures to retail customers. During those three months of transitional relief firms were able to use either the previously applicable wording for EEA firms or the new prescribed wording.

Transitional relief for firms in the TPR 

Since the transition period ended at 11pm on 31 December 2020, EU law no longer applied in the UK. Temporary transitional powers are available for use by the regulators until two years from the end of the transition period.

The PRA previously granted transitional relief in relation to certain aspects of the following third country requirements. Note; all the following transitional relief provisions have now expired and firms are required to comply with all third country branch requirements applicable to them in TPR:

Please note that we expect insurance firms to comply with branch security deposit requirements (PRA rulebook for Insurers, Third Country Branches 3.3).

Financial Services Compensation Scheme (FSCS) Protection and the TPR

This section sets out the FSCS rules that apply after the end of the transition period.

Deposits

Deposit-takers in the TPR with a UK establishment automatically become members of the FSCS and are required to comply immediately with the Depositor Protection Part of the PRA Rulebook (including the UK’s depositor awareness and notification requirements, Single Customer View (SCV) requirements, and payment of levies). For example, firms are subject to the requirements to provide an SCV file to the FSCS within three months of becoming a TPR firm, and within 24 hours of a request by the PRA or FSCS. No transitional relief is available for these requirements. SS18/15 ‘Depositor and dormant account protection’ has been updated to describe the PRA’s expectations.

Protection for eligible deposits held by these UK establishments is provided by the FSCS from the end of the transition period. FSCS protection does not extend to deposits held by deposit-takers in the TPR without a UK establishment or deposits which are not held by a deposit-taker's UK establishment.

• Policy Statement PS5/19: 'The Bank of England’s amendments to financial services legislation under the European Union (Withdrawal) Act 2018'

Continuity of access rules – waiver by consent

Deposit-takers in the TPR with establishments in the UK in which they hold deposits are subject to the Depositor Protection Part of the PRA Rulebook (DPP) from the end of the transition period. This waiver by consent is available in relation to such firms and exempts a firm from particular provisions of the DPP, specifically the Continuity of Access rules (DPP 13.4-13.8 inclusive) and from the related Continuity of Access reporting requirements (DPP 15.2-15.4 inclusive and 15.7). Inbound freedom of services firms holding deposits outside the UK are not subject to the Depositor Protection Part, so do not need to request the waiver. 

• Waiver by consent of the Continuity of Access rules – September 2019 (pdf)
• Direction for waiver by consent of the Continuity of Access rules – September 2019 (pdf)
• If a firm wants to take up this waiver, it should read the direction and contact the Waivers Team at the PRA stating that: (a) it has an establishment in the UK that holds deposits, (b) at the end of the transition period it entered the TPR or SRO (as applicable), (c) at the end of the transition period it met Case 3 in the description of the waiver by consent, and (d) it requests the waiver.

The Waivers Team can be contacted at:

PRA-Waivers@bankofengland.co.uk

or 

Waivers Team
Prudential Regulation Authority
20 Moorgate
London
EC2R 6DA 

All available waivers and modifications can be found on the Authorisations – Waivers and modifications of rules page.

Insurance

TPR insurers have deemed Part 4A permissions and are ‘relevant persons’ for purposes of the Policyholder Protection Part of the PRA Rulebook. These firms are required to pay FSCS levies in respect of new and existing policies that are protected by the FSCS. Prior to the end of the transition period, EEA insurers conducting insurance activities in the UK using freedom of services or freedom of establishment passports were already within scope of FSCS protection for insurance policies.

Policies issued prior to the end of the transition period that were FSCS protected policies will continue to be protected for as long as the TPR insurer remains a ‘relevant person’ under FSMA.  If an insurer is no longer a ‘relevant person’ under FSMA through the available authorisation mechanisms, policyholders will lose FSCS protection for acts or omissions (insured events) that occur after the loss of ‘relevant person’ status.

For policies issued or re-issued after the end of the transition period through a UK establishment of a TPR firm, policies must relate to a risk or commitment situated in the UK, Channel Islands, Isle of Man or Gibraltar in order to be protected. New policies relating to EEA risks are not protected. 

For policies issued or re-issued after the end of the transition period through an EEA establishment of a TPR firm, only UK risks are FSCS protected (new policies relating to EEA, Channel Island, Isle of Man or Gibraltar risks are not protected). Policies issued through an EEA establishment are only eligible for FSCS protection where the firm does not yet have a UK establishment (eg where a TPR insurer in the process of setting up a UK establishment issues policies through an EEA establishment after the end of the transition period).  

This means that if a TPR insurer already has an establishment in the UK when it is in the TPR (eg it enters the TPR in respect of both freedom of services and a freedom of establishment business), FSCS protection will only be available for policies that the TPR insurer issues after the end of the transition period from the UK establishment. Any policies that the TPR insurer issues through the EEA establishment after the end of the transition period are not eligible for FSCS protection.

More information is available in ‘PS5/19’ and the Policyholder Protection Part of the Rulebook . 

FCA activities

The FCA is responsible for rules relating to FSCS protection for the following activities: investment provision, investment intermediation, insurance intermediation, debt management and home finance intermediation.

For more information about the FCA’s approach for FSCS cover for firms in the TPR, please refer to the FCA website.

Senior Managers and Certification Regime and the TPR

Update 7 January 2019: We published a note that clarified the interaction between the PRA’s and FCA’s proposals for applying the Senior Managers and Certification Regime (SM&CR) to firms in the TPR. In particular, this note included a set of Frequently Asked Questions (FAQs) on how the two sets of proposals would apply to dual-regulated, EEA firms that were operating in the UK via an establishment passport through a branch (‘EEA branches’).

Compliance with the PRA’s requirements under the Senior Managers and Certification Regime (SM&CR) was not a pre-condition of entry into the TPR. 

All firms in the TPR (including cross-border service providers) are required to have an individual approved to perform the Head of Overseas Branch function (SMF19). In some circumstances the PRA Rulebook requires third country branches also to have persons approved to perform other PRA Senior Management Functions (SMFs) (eg Chief Risk function (SMF4) or With-Profits Actuary function (SMF20a)). Where those circumstances arise for firms in the TPR (including cross-border service providers), they are required to have persons approved to perform the relevant additional SMFs.

The PRA is not applying all the PRA Prescribed Responsibilities (PR) for third country branches to firms in TPR. Instead the following apply:

• the existing Prescribed Responsibility for “compliance with the UK regulatory system applicable to the firm”. This applies to all firms in the TPR. (It does not include compliance with any PRA requirements for which transitional relief has been granted until such relief expires); and
• a bespoke, new Prescribed Responsibility for managing the process of obtaining such permission (including, without limitation, the completion and submission of the firm’s application and providing the PRA with such co-operation and with all accurate and up to date information and assistance that it may reasonably require in order to determine whether the requirements for authorisation have been met).’ This PR will be used to clarify accountability for firm specific actions which firms may be asked to undertake during the transition to third county branch.  This PR should be allocated to individuals with deemed approval as Head of Overseas Branch (SMF19) for firms in TPR.

The new PR applies to those firms which applied for Part 4A authorisation as a third-country branch, only for the duration of the application process. If the firm obtains authorisation, then the full list of PRA PRs will apply to the firm.  If the firm withdraws its application or fails to obtain such authorisation as a third country branch and is placed into Supervised Run Off (SRO), then the SM&CR requirements for firms in SRO will apply.

The statutory instrument establishing the TPR amends FSMA and allows the PRA and FCA to treat individuals as if they were approved to perform an SMF while their firms are in the TPR, if those firms have submitted an application under section 60 of FSMA on their behalf (‘Section 60 applications’).

The PRA may give these deemed approvals to individuals performing any SMF. If you are a firm operating in the UK through an EEA branch, your population of PRA SMFs may already be approved by the FCA as EEA Branch Senior Managers (SMF21) but you will need to make new section 60 applications to the PRA for individuals performing PRA SMFs while in the TPR.  

This deeming operates as follows:

• Where firms have submitted a Part 4A permission application accompanied by the relevant full SMF applications in advance of entry into TPR, the PRA (with the FCA’s consent) can decide to treat the individuals as approved with effect from entry into TPR. Individuals will not be required to undergo the standard PRA fitness and propriety assessment to be eligible for deemed approval.
• Firms that have not submitted full SMF applications prior to entry into TPR will need to complete and submit application form(s) (‘TPR SMF Application’) containing key information on the individual(s) they propose to perform SMFs while they remain in the TPR. They will also need to complete and submit the related Statement of Responsibilities form. After receiving a TPR SMF Application the PRA (with the FCA’s consent) can decide to treat the relevant individual as approved.  Individuals will not be required to undergo the standard PRA fitness and propriety assessment to be eligible for deemed approval. Firms should ensure that they submit the relevant Senior Managers and Certification Regime forms within six weeks from the end of the transition period to enable individuals to obtain a deemed approval by 12 weeks from the end of the transition period.

Other requirements under the SM&CR will apply to individuals with deemed approval, including the Conduct Rules and Senior Manager Conduct Rules.

More broadly, PRA SMFs in firms which submit (either prior to their entry into TPR or during TPR) a Part 4A authorisation application will undergo a full fit and proper assessment by the PRA/FCA (including interviews at either regulator’s discretion). PRA approval, (with the FCA’s consent), will be subject to the outcome of such assessments. Firms should not treat a deemed approval as an SMF as an indication that we and/or the FCA are satisfied as to that individual’s fitness and propriety to perform that or any other SMFs on a permanent basis.

Certification Regime and Regulatory References

PRA regulated firms operating in the UK through an EEA branch passport were also subject to the Certification Regime under the FCA’s rules (in respect of any relevant UK-based employees) and remain so in the TPR. They also became subject to the PRA’s Certification rules (which do not give rise to additional substantive obligations). The Certification Regime became effective for insurers, including those operating in the UK through an EEA branch on 10 December 2018 but insurers had 12 months from that date to complete the first round of annual certifications (Strengthening accountability page 22 November 2019 update).

The PRA's and FCA’s requirements on regulatory references applied to all dual-regulated firms, including (under FCA rules) deposit-takers and insurers operating in the UK through an EEA branch passport (in respect of their UK-based SMFs, Senior Insurance Manager Functions (SIMFs) and, where applicable, Certified employees, Notified NEDs and Key Function Holders (KFHs)). This remains the case on entry into the TPR.

The Certification Regime and Regulatory References applies to firms without a UK establishment previously operating in the UK through a FOS passport which have entered into the TPR.

The PRA’s Conduct Rules apply to SMFs with deemed provisional approval and employees subject to the PRA’s Certification rules (ie UK Material Risk Takers (MRTs)) from the moment their firm enters into the TPR. Individuals in firms previously operating in the UK through an EEA branch passport and subject to the FCA’s Conduct Rules remain subject to those requirements while their firms are in TPR. They will also become subject to the PRA’s Conduct rules (which do not give rise to additional obligations).

Solvency II approvals

Eligible EEA insurers that had relevant SII approval(s) from an EEA regulator prior to entering the TPR will be deemed to have been granted corresponding approval by the PRA while the insurer remains in the TPR. Deemed approval will be granted by the PRA with respect to regulations listed in the TPR SI Opens in a new window.

Gibraltar firms

Statutory Instrument 2019/589 established transitional arrangements for Gibraltar that will preserve the status quo of deemed-passporting for Gibraltarian firms post Implementation Period Completion Day. These transitional arrangements have been extended until 31 December 2022 by further SIs and can be further extended until such time as the as the permanent arrangements of the Gibraltar Authorisation Regime are in place.

Consequently firms headquartered and authorised in Gibraltar that conduct regulated activities in the UK through their deemed passport under Schedule 3 of FSMA have been able to continue to operate in the UK without the need to join the TPR.

FMIs

Information on the effect of the UK’s withdrawal from the EU on FMI supervision is available for FMIs requiring recognition and seeking information on the temporary regimes after the end of the transition period.

Own initiative power to cancel the deemed permission

Under the Temporary Permissions Regime (TPR), a firm that was formerly authorised to carry on regulated activities in the UK through Freedom of Establishment (FOE) or Freedom of Services (FOS) passporting obtained a deemed Part 4A permission to carry on those activities for a maximum of three years from the end of the transition period. A firm’s deemed permission in TPR then ends:

• when its application for Part 4A permission is determined (either approved or rejected); or
• when the PRA exercises its own initiative power to cancel the deemed permission (or, for firms with a deemed variation, to vary the permission so there are no longer any activities covered by the deemed variation); or
• three years from the end of the transition period (extendable by HM Treasury by 12 month increments).

The PRA has decided to exercise its own initiative power to cancel the deemed permission of 33 insurance firms in light of those firms deciding not to submit an application for Part 4A permission within the period in which they were directed to do so. These cancellations take effect on 1 January 2023. These firms will then automatically enter the Supervised Run-Off (SRO) regime under which they will have permission to service existing contracts and to carry out certain limited ancillary activities.