EEA payment and EMI institutions after Brexit

For the payment and e-money service providers within the European Economic Area that are covered by the FCA’s remit as an outcome of Brexit, the last several months have been a sharp turn in terms of expectations. This is due to the proposed changes to the Approach Document setting out the regulators’ approach to the Payment Services Regulations 2017 and the E-Money Regulations 2011.

Prehistory

The Tempοrary Permissions Regime (TPR) was developed to guarantee continuity of servicing for UK clients. It allows companies to transit from the passportization regime to the UK’s complete regulative regime so they can, on a temporal basis, deliver services to UK clients while they are looking for authorization. Companies now have a maximal term of 3 years to go on running business. By the end of this period, all TPR firms are obliged to notify the FCA of their plans for their business. If they intend to get authorized in the UK, it will necessitate the establishment of a UK headquarters or, if an EMI, an office.

Timeframes set by the FCA

Despite the FCA has not published guidance on a website for companies, many organizations in the TPR have received e-mails with details on the next steps. The FCA is granting companies a certain period to provide their applications and soon will be communicating with them to obtain an application form by a specified date. If a company’s authorization or registration is not accepted or its temporary authorization rejected, it will be included in one of two categories subject to how it is passported into the United Kingdom:

• Supervised runoff – institutions in the EEA with UK offices or permissions in the UK, and firms who came into the TPR but then did not obtain UK authorization, or
• Contractual runoff – for all other crossborder services firms.

This is the monetary services contracts framework that permits organizations to carry out an exit from the local UK marketplace.

So what are the amendments?

The main changes refer to most chapters of the Approach Document. They are as follows:

• Safeguarding – The company must protect funds in line with UK regulations and the FCA’s rules. The FCA may ask for confirmation of the steps undertaken by firms to make sure client funds are protected in the case of insolvency. Also, there must be an engaged independent consultant to carry out a yearly audit.
• Notifying – Companies are required to inform the regulator of changes to ownership, executive management, and outsourcing negotiations. Other aspects to be informed about include regulatory actions or adverse judgments undertaken in the homecountry of the company.
• Reporting – It is necessary to provide information to the FCA via the Gabriel/RegData system. It refers to fraud and operational risk aspects.
• AML obligations – Companies must adhere to UK financial crime regulations. EEA organizations with an office in the UK will already have to follow this rule, but crossborder firms, who in the past followed the obligations of their homecountry requirements will need to figure out how the UK legal system differs and adapt its procedures.
• Client complaints – In a similar fashion, EEA crossborder firms will need to adapt their procedures to stay compliant with UK laws.

The bottom line

As a financial company under the TPR, it’s crucial to clearly know your duties as an FCA-regulated organization and adapt systems and internal documents accordingly. If a service provider wishes to go on operating in the UK after the TPR period has expired, they must establish a physical UK presence and be authorized by the FCA. If the decision is not already made, a service provider should decide on their plans for their UK business and clientele and have a roadmap and execution plan to either go on operating or exit the UK market.