Brexit Broadcast: the FCA consultation on the TPR

Video | October 2018 | 05:49

About Brexit Broadcast

Ahead of Britain’s impending departure from the EU on March 29, 2019, our financial services team will be updating you on the latest developments and exploring the implications of Brexit for the industry.

Latest video

Brexit Broadcast :The FCA consultation on the TPR (October 2018)

Jonathan Herbst and Simon Lovegrove discuss the FCA's consultation on the temporary permissions regime.

Video archive

Brexit Broadcast: October Brexit update (October 2018)

Jonathan Herbst and Simon Lovegrove discuss the ESMA Chair keynote speech, ESMA’s letter to the European Commission, and the MiFID II draft SI. 

Brexit Broadcast: Financial market infrastructure (September 2018)

Hannah Meakin, Jonathan Herbst and Simon Lovegrove discuss financial market infrastructure and Brexit.

Brexit Broadcast: UK Government’s White Paper (July 2018)

Simon Lovegrove and Jonathan Herbst discuss the Government’s White Paper on the future UK/EU relationship.

Brexit Broadcast: Brexit and financial services - Germany (June 2018)

Martin Krause, a partner in our Frankfurt office, provides a view on Brexit from Germany.

Brexit Broadcast: Brexit and financial services - France (June 2018)

Roberto Cristofolini, a partner in our Paris office, provides a view on Brexit from France.

Brexit Broadcast: Focus on asset managers (June 2018)

Jonathan Herbst and Imogen Garner discuss the areas that the asset management industry is focusing on in relation to Brexit.

Brexit Broadcast: Transitional agreement (April 2018)

Simon Lovegrove is joined by Jonathan Herbst and Peter Snowdon to discuss the transitional agreement.

Brexit Broadcast: Update on PRA branch authorisations (January 2018)

Peter Snowdon and Simon Lovegrove take a look at the PRA's recent consultation paper on branch authorisations, CP29/17, and also its Dear CEO letter.

Brexit Broadcast: Latest developments (January 2018)

A look at what we have been seeing in the market and what may be happening in the next few weeks.

Brexit Broadcast: Brexit update – Financial Services (October 2017)

Simon Lovegrove is joined by Jonathan Herbst, our global head of financial services who has been working with a number of firms on Brexit.

Brexit Broadcast: Brexit and Article 50 (March 2017)

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Brexit Broadcast: Brexit update – Financial Services (February 2017)

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Brexit Broadcast: Brexit update – Financial Services (September 2016)

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Brexit Broadcast: What does the leave vote mean for financial services firms? (June 2016)

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Brexit Broadcast: Brexit basics (May 2016)

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Brexit Broadcast: The potential legal implications of a Brexit (March 2016)

The upcoming EU referendum and the continuing uncertainty as to whether the UK will choose to stay in or leave the EU is clearly a concern for our clients with business interests in the UK and Europe.

Transcript
Simon Lovegrove: Hello everyone, and welcome to our latest Financial Services and Brexit video. Recently, we've seen a lot of papers: draft statutory instruments on-shoring EU legislation onto UK legislation, and two consultation papers from the FCA, one dealing with the on-shoring of binding technical standards and Level 3 guidance, and the other giving more detail on the temporary permissions regime. In this video I'm joined by Jonathan Herbst, and we look at the FCA's consultation on the temporary permissions regime. Jonathan, let's kick off, timing in the temporary permissions regime, three years, but it's not as simple as that.
Jonathan Herbst: No, that's exactly right. What they're actually saying is that it's a maximum of three years, and there will be what they call a series of landing slots, that firms have to apply for permission within a three-month period. There will be five cohorts, and I think the key practical point to note from this is, it's much shorter for most firms than the three years, and for some, they're talking about October to December next year. And if you don't apply [for FCA authorisation] during that time, you either have to withdraw, and it's not entirely clear what that cancellation application actually means, or you lose your temporary permission rights. So, it is very much an interim thing. It's a bit like sort of sitting on the runway, so three years is the very end of the runway, but actually, depending on who you are – and they'll tell you which cohort you sit within - it could be a very different picture. And I think that's something the market needs to understand.
Simon Lovegrove: And to use your terminology, can you change your date of departure?
Jonathan Herbst: So, what they say in the CP is possibly in highly exceptional circumstances. I think we take that to mean it's pretty much fixed. I think, given the number of firms involved, that's inevitable. Yes, there could be the odd exception. If you look back at the consumer credit example, there were a few situations where firms applied for a different date, but I think it's going to be very much the exception.
Simon Lovegrove: The consultation paper that the FCA has brought out talks about the rules that are applicable to firms within the temporary permissions regime, discussion about the principles for businesses and also substituted compliance. What's your take on that?
Jonathan Herbst: I think it's probably what we expected, which is all the current rules that a firm is subject to from a conduct perspective are already applicable, but there are two other key things. Number one, all the MiFID and other regulation and European framework will be applicable. Now, there is this possibility of so-called substituted compliance, where you comply with your home state rules. Just on that, one of the things that's unclear to me is the extent to which the FCA will look in detail at whether in reality the home state rules actually cover the ground. As we know, a number of member states have not implemented properly, or don't apply those rules properly. So, that's one issue. And then the third category will be a small category where they actually apply additional rules, and in particular, the Principles for Businesses will apply, and aspects of CASS will apply, in particular CASS reporting. Just on CASS, it's interesting to note, they're not applying it in full, it's really the reporting mechanism, and so there's a sort of gentler move into the regime. Ditto with senior managers where, at least during the interim period, the full regime will not apply during the temporary permissions regime.
Simon Lovegrove: And on the Principles themselves, the consultation paper has specific comments as regards Principle 4 and also Principle 11.
Jonathan Herbst: Yes, so I mean, as far as Principle 4 is concerned, Prudential, there's a carve out. And it's interesting because it's a rather weird situation, where effectively the FCA are saying we are not going to cover Prudential regulation. Implicitly, they're expecting the home state to still do that, although there will be - in this scenario, it's a no-deal scenario - there will be no legal framework to do that, and that's a slightly strange policy conclusion but that's what they're saying. On Principle 11 it will apply, firms will have to tell the FCA, you know, and be open and cooperative, tell them about anything they would reasonably expect notice of. So, I think for practical purposes, firms will be largely treated as UK firms. An important final point to make here is the full range of enforcement and supervisory powers will apply. So, the whole home / host thing, that all goes away.
Simon Lovegrove: Possibly important to note that the PRA hasn't issued its consultation paper on Brexit as well?
Jonathan Herbst: Yes, that's coming shortly.
Simon Lovegrove: And finally, Jonathan, we were talking before we went on camera about services firms.
Jonathan Herbst: Yes, well I think this is one of those really interesting issues because, you know, during the temporary permissions regime, services firms will, you know, be able to carry on doing their business. Importantly, and this applies to all firms, just within the areas already covered by that services passport. So, that's fine. The real question is what happens at the end, and implicitly, and arguably it's there quite clearly, a firm will need to make a decision to do one of three things at the end, either rely on the overseas persons exclusion if it continues to exist in its current form, secondly, operate through a branch, a permanent establishment in the UK, or thirdly, set up an entity. It does not appear that there will be a services option. I mean, that's logical given the threshold conditions. Let's see how that plays out, that seems to be what the text is saying and there are a couple of implications, but that's a point the market needs to understand. So, I think, to finish on this, it reiterates the point this is a temporary regime, it's not a permanent rollover of the current structure.
Simon Lovegrove: Thanks, Jonathan. This concludes this video. We'll do a later video which covers the FCA's consultation paper on Brexit, dealing with binding technical standards and Level 3 guidance. Goodbye.

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