Operational readiness for the Temporary Permissions Regime

Introduction

Following the UK’s exit from the EU at 11pm on Friday 31 January 2020, the UK entered the transition period agreed as part of the Withdrawal Agreement between the UK and EU. The transition period is due to end at 11pm on Thursday 31 December 2020 and the Temporary Permissions Regime (TPR) to take immediate effect. Firms that have submitted a valid Notification or Part 4A application (and not withdrawn) will automatically enter the TPR.

A firm that is authorised to carry on regulated activities in the UK through Freedom of Establishment (FOE) or Freedom of Services (FOS) passporting will obtain a deemed Part 4A permission to carry on those activities for up to 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 has a top-up permission would obtain a deemed variation of that permission.

Therefore it is important that firms are operationally prepared to enter the TPR and are able to meet our regulatory requirements that will apply to them once they are in the TPR.

The full requirements of the TPR for branches are set out in the ‘Regulatory requirements for firms in TPR’. For firms in the TPR without a branch in the UK (cross border service providers) a more limited set of rules will apply.

Information in this section was included in a letter that we sent to all PRA-regulated firms on Tuesday 1 September, Letter from Sam Woods ‘Temporary permissions regime – operational readiness’.

Supervisory approach

As set out in the PRA’s approach to supervision of the banking and insurance sectors, we have two primary objectives: (i) a general objective to promote the safety and soundness of the firms we regulate, focusing on the adverse effects that firms can have on the stability of the UK financial system; and (ii) an objective specific to insurance firms, to contribute to ensuring that policyholders are appropriately protected. There are three principles underpinning our core approach: (i) our supervisors rely on judgement in taking decisions; (ii) we assess firms not just against current risks, but also against those that could plausibly arise further ahead; and (iii) we focus on those issues and firms that are likely to pose the greatest risk to our objectives. Across these three principles we continue to apply proportionality to ensure our interventions do not go beyond what is necessary in order to achieve our objectives.

We take a tailored approach to supervising the smaller firms that we regulate, due to their limited potential to cause harm to the financial system. More information on this can be found on the Supervision webpage.

The Bank’s news release ‘Temporary permissions and recognition regimes’, published in July 2018, sets out that the PRA will have the same powers in relation to firms in the TPR as for other firms with a Part 4A permission, including powers to impose requirements, and to vary or revoke permissions. Firms will be subject to the same obligations and supervisory framework as if the firm were a Part 4A authorised firm. Firms in the TPR with an establishment in the UK will be required to comply with the same rules that apply to other third country branches (subject to any transitional relief applicable under the TPR). These are available to view in the PRA Rulebook. There is transitional relief on some items, more information on which can be found in the section headed ‘Transitional relief’ below. For firms in the TPR without a branch in the UK (cross-border service providers) a more limited set of rules will apply as set out on the main Temporary Permissions Regime page on this website.

Threshold Conditions

Firms should be open and straightforward in their dealings with us, taking the initiative to raise issues of possible prudential concern at an early stage. The PRA, for its part, will respond proportionately. While firms are not required to demonstrate that they satisfy Threshold Conditions (TCs) in order to enter the TPR and receive a deemed Part 4A permission, once a firm is in the TPR they will be required to notify us if they become aware (or have information that reasonably suggests) that they 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 a firm in the TPR is failing, or likely to fail, to satisfy the TCs, it will be open to the PRA and Financial Conduct Authority (FCA) to take appropriate action, including using powers to impose requirements or to restrict or cancel a firm’s deemed Part 4A permission.

Financial Services Compensation Scheme protection (insurance)

Insurers that are ‘relevant persons’ for purposes of the Policyholder Protection Part of the PRA Rulebook (including TPR, Supervised Run-Off (SRO) and Contractual Run-Off (CRO) insurers following the end of the transition period) will be required to pay FSCS levies in respect of policies that are protected by the FSCS. No transitional relief is available.

Financial Services Compensation Scheme protection (banking)

Once in the TPR, a UK branch of a deposit-taker will automatically become a member of the Financial Services Compensation Scheme (FSCS) and will be 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 will immediately be subject to the requirements to provide a compliant SCV file within 24 hours of a request by us or the FSCS, and within three months from the end of the transition period. No transitional relief is available for these requirements.

The requirements are contained in the existing Depositor Protection Part of the PRA Rulebook, but overlaid with the changes that will come into effect at the end of the transition period. Further PRA expectations are contained in the EU withdrawal version of Supervisory Statement 18/15 ‘Depositor and dormant account protection’.

Senior Managers and Certification Regime

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 (Senior Management Function (SMF) 19). We therefore encourage firms to apply for the necessary approval(s) as soon as possible and within six weeks from the end of the transition period. Further detail on the type of roles to be considered can be found in the note we published on Monday 7 January 2019. Individuals need to have been approved by 12 weeks from the end of the transition period.

Firms that have not submitted full SMF application(s) prior to entry into the TPR (for example, as part of a full Part 4A application) will need to complete and submit application forms. Firms will also need to complete and submit the related Statement of Responsibilities form. We are not applying all the PRA Prescribed Responsibilities (PR) for third country branches to firms in the TPR as explained on the main Temporary Permissions Regime page on this website.

A set of frequently asked questions and further information for firms regulated by both the PRA and FCA are available on the note ‘Application of the Senior Managers and Certification regime to firms in the temporary permissions regime: clarification of the PRA’s and FCA’s proposal’, published on Monday 7 January 2019.

Status Disclosure (retail banking firms only)

Firms in the TPR are required to include specific status disclosure wording in their communications with retail clients, both written and electronic (to indicate that firms are in the regime). However, we are intending to grant firms in the TPR a three month transitional relief 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 would be able to use either the existing wording for European Economic Area firms or the new prescribed wording.

Transitional relief

We acknowledge that firms entering the TPR may find it challenging to comply immediately after the end of the transition period with some requirements that will apply to them for the first time. Therefore we intend to provide specific transitional relief in relation to certain aspects of the third country requirements which are set out on the main Temporary Permissions Regime page on this website.

Next steps

Our supervisors will continue communicating with firms to understand progress on preparing to meet the regulatory requirements that will apply when a firm has obtained deemed Part 4A permission and specifically the points noted above.

Firms should engage with our supervisors on a proactive basis. If a firm does not have a named supervisor, please email PRA.FirmEnquiries@bankofengland.co.uk or call 020 3461 7000.