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The EEA Passport Rights

The UK regulation of EEA firms post-Brexit – contractual continuity and the financial services contracts regime

EEA firms currently passporting into the UK are contingency planning for a “hard Brexit” on which their authorisation to continue to conduct regulated activities in the UK ends abruptly. Following publication of details around the temporary permissions regime (TPR see our separate bulletins on the FCA’s approach to firms in the TPR and the PRA’s approach to firms in the TPR), HM Treasury has now published the legislative framework to allow those EEA firms that do not enter the TPR or which exit the TPR without authorisation to continue to service existing contracts for a limited period to enable an orderly wind down of their UK business (the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019 or FSC SI1).

Understanding the availability and scope of the FSC SI is crucial for EEA firms that will not be authorised or deemed authorised to conduct regulated activities in the UK post Brexit. Performing regulated activities in the UK without such permission could be a criminal activity. The availability or otherwise of the FSC regime helps firms to determine the extent to which they may be able to continue to service existing business in the UK in the absence of authorisation or deemed authorisation. Equally, the existence of the FSC SI protects UK clients and counterparties of such firms from risks that might otherwise arise such as an EU insurance firm being unable to pay an insurance claim or an EU central counterparty or trade repository being unable to continue to provide services in the UK.

Assuming a hard Brexit goes ahead, EEA firms will need to decide in advance of 29 March whether to opt into the TPR, enter into the run-off regimes (the SRO and CRO, as discussed below) contemplated by the FSC SI or to cease to be regulated in the UK altogether. Each will present different benefits (in terms of ongoing access to the UK market) and costs (principally regulatory compliance obligations).

The UK regulation of EEA firms download
Financial services sector