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FCA issues stark warning for TPR firms

  • Global
  • Financial services
  • Financial services - Asset managers and funds

21-01-2022

On 18 January 2022, the FCA issued a statement on its temporary permissions regime (“TPR”) webpages setting out its approach to TPR firms which do not meet its expectations.  The FCA stresses that the TPR is only for use by firms who want to operate in the UK in the long term.  TPR firms should be seeking to meet the required standards for full UK authorisation in preparation for authorisation.  The FCA will take appropriate action if TPR firms do not meet the required regulatory standards, including removing them from the TPR.  

When will the FCA take action?

Missing a landing slot

A FSMA firm is an EU firm which passported into the UK under Schedule 3 or Schedule 4 Financial Services and Markets Act 2000 (“FSMA”) prior to entering the TPR.

The FCA expects FSMA firms to submit their application for authorisation during their allotted landing slot.  The FCA considers a FSMA firm missing its landing slot as failing to meet FCA expectations.

Failure to respond to mandatory information requests

The FCA may consider TPR firms which do not respond to mandatory information requests as not fit and proper or incapable of being effectively supervised.  Such firms may struggle to demonstrate that they meet the FCA’s threshold conditions for full authorisation.  So far the FCA has removed 4 firms from the TPR for failure to respond to mandatory information requests.

Firms which do not intend to apply for full authorisation

The TPR is intended to ensure continuity of service for UK customers by enabling TPR firms to transition from the passporting regime to the UK full authorisation regime.  Firms which do not intend to apply for authorisation but have entered the TPR in order to undertake new business present a risk of harm as they will have no long term presence in the UK. 

The FCA expects TPR firms which want to expand their UK businesses to want to become authorised.

The FCA accepts that there are some valid circumstances in which a TPR firm will not apply for full authorisation.  It gives the following examples:

  • a firm which is completing a merger with another entity
  • a firm which is transferring its UK business to a UK legal entity in order to continue to serve the UK market, for instance if it is unable to carry on its business under the UK’s on-shored regime:
    • for example an operator, manager, trustee or depositary of a UK authorised collective investment scheme or a payment services firm
  • a firm which is becoming an appointed representative (“AR”) of a UK authorised person

For TPR firms merging or becoming ARs, the FCA expects the firms to cancel their TPR status once the relevant action is concluded.  On concluding a transfer of business, unless a TPR firm has remaining business for which it is seeking full authorisation, it too will be expected to cancel their TPR status.

If a TPR firm does not have a valid reason not to apply for full authorisation, the FCA expects the firm to voluntarily enter supervised run-off (“SRO”) (if it has remaining UK business) or cancel its TPR status (if it does not).

Firms refused authorisation

The FCA expects TPR firms which will fail to meet the Threshold Conditions to voluntarily enter SRO or withdraw its authorisation application and cancel its TPR status. If an application is refused or withdrawn, firms should not reapply.

Actions the FCA may take

Actions the FCA may take against a TPR firm which does not meet their expectations include:

  • removing the firm from the TPR
  • asking the firm to voluntarily stop undertaking new business
    • if a firm does not comply voluntarily, the FCA will use its powers to prevent firms from undertaking new business
  • directing a FSMA firm to apply in an earlier landing slot
  • contacting the firm’s home state regulator and publishing a notice in the UK

In a recent press release, Emily Shepperd, Executive Director of Authorisations at the FCA, said:

“The UK is open for business, but not to firms who do not meet our regulatory expectations.  We expect firms operating under the regime to be responsive to our requests for information, and that are coherent in their business planning.  We will continue to act against firms that fail to meet our standards.”

Firms which are removed from the TPR will be committing a criminal offence if they continue to conduct regulated business in the UK.

How Eversheds Sutherland can help

Since June 2016, our lawyers, consultants and International Funds Net (FundsNet) team have advised various institutions passporting into the UK from EU Member States and passporting from the UK into the EU on Brexit planning and Brexit related issues. Please get in touch with the contacts below for further information: