Brexit talks, which had been postponed due to the pandemic, are to be reconvened today with European Union and British negotiators attempting to salvage the very tight schedule they had set themselves to agree a deal.
An estimated 301 EEA payment and e-money institutions operate in the UK. Below, we set out the key implications to these firms of the transitional period, the Temporary Permissions Regime and we have set out, in an easy to follow question and answer format, what the implications of the deal will be for those offering payment services to UK customers.
What is passporting?
Since it was first introduced in 1995, service passporting has been the mechanism by which regulated firms could sell their services into other member states without having to complete a long and often costly authorisation process in the host state. Both the Payment Services Directive and the E-money Directive allow payment service providers authorised in one Member State to ‘passport’ their authorisation into another Member State and provide services either remotely or through an establishment in that other Member State.
What changed when the UK left the EU on 31 January 2020?
For non-UK payment and e-money institutions passporting into the UK, not much changed when the UK left the EU in January. This is due to the withdrawal terms upon which the UK left the bloc and best clarifying at this stage. From 31 January until the 31 December 2020, the UK will be in a ‘transitional period’ in which European law still applies as if we were a member. This is designed to provide adequate time for European and British negotiators to agree a trade deal and firms to understand what the future relationship will look like so they may prepare.
We’re passporting into the UK at present, what will change for us when the transitional period ends on 31 December 2020?
To minimise disruption to UK consumers, the government announced, in December 2017, that it would introduce a temporary permissions regime (TPR) for firms located across the EEA currently making use of the passporting regime in order to service and market to a UK client base.
The TPR provides a contingency mechanism to ensure payment and e-money institutions (and other regulated financial services firms and investment funds) can continue their business with minimal disruption until they choose to resign from the UK market or establish a UK entity which obtains authorisation in its own right
The TPR will come into force at the end of the transitional period. While it is unclear exactly how long it will last, legislation permits the regime will be in place for a maximum of 3 years.
Do passporting firms automatically get the temporary permission?
No, firms currently passporting into the UK must make a notification to the FCA to seek the temporary permission. The notifications window was open between July 2019 and Brexit Day on the 30 January 2020 and many firms will have applied at that stage.
New applications are not currently being accepted. This creates a problem for any firm that missed the original window, perhaps because their plans have subsequently changed or because they have become authorised and begun passporting either before the UK left the EU or during the transitional period.
We have asked the FCA if there will be a new window for notifications, but they were unable to confirm who may be eligible or advise when that would be. However, we expect that there will be a new application window later in the year, at least for firms that became authorised and have since started passporting into the UK after the notification window ended.
What activities can I carry on under the temporary permissions regime?
The scope of the permission provided under the regime only reflects the scope of a firm’s passporting permission immediately before the end of the transitional period.
I am an agent of a non-UK payment service provider, what do I do?
You are not able to apply for the temporary permissions regime but your principal may have done so already, or be able to do so if/when the window opens again. We advise you to discuss these arrangements with your principal so that you can plan for your business.
I want to continue providing services to UK customers, what do I have to do before the temporary permissions regime ends?
If you would like to provide payment services in the UK you will have to establish a UK entity to apply for authorisation from the FCA as a payment or e-money institution. If you have a temporary permission, the FCA will advise you as to when they expect to receive your application (they will give you what they call ‘a landing slot’).
You will have to prove that your business will perform payment services within the UK, that the business is ‘ready, willing and able’ to operate on authorisation and that decisions about the business will be made within the UK. If you want to become a payment institution, you will have to have your headquarters in the UK but if you are an e-money institution, you will be able to establish a branch in the UK.
If you would like any help understanding the TPR or other regulatory matters, please do not hesitate to contact a member of the fscom team.
This post contains a general summary of advice and is not a complete or definitive statement of the law. Specific advice should be obtained where appropriate.