FCA Consults on Rules for Post-Brexit Temporary Permissions Regime for Incoming EEA Firms and Funds 

The UK government is proposing to implement a “temporary permissions regime” to cover “inbound” European Economic Area (EEA) firms and funds in the event of a “no deal” Brexit. The regime is proposed to cover both firms and funds authorised in an EEA country and providing investment services or marketing funds to UK customers under EU passporting arrangements prior to the date of the UK’s exit from the EU. The stated intention is to allow such inbound firms and funds to continue operating in the UK within the scope of their current passports for up to three years after a “no deal” Brexit while they apply for full (permanent) UK authorisation or recognition.  Participation in the regimes is to be by notification to the FCA. The FCA expects the notification window to begin in early January 2019 and to end prior to the exit day. 

The FCA has consulted on changes to its handbook necessary to implement the temporary permissions regime.

Read: The consultation paper

FCA Consults on Brexit Rule Changes and Binding Technical Standards  

The FCA has published its first consultation paper on proposed changes to the FCA Handbook and to binding technical standards (BTS) resulting from Brexit.  This paper sets out the FCA’s approach to reviewing the Handbook and BTS to ensure an operational regulatory framework after Brexit.   Responses are due by December 7, 2018 and the FCA will provide feedback early next year and publish final versions of the materials on or before March 29, 2019.  

The FCA is due to publish a second consultation covering amendments to BTS and parts of the Handbook affected by Brexit statutory instruments that are due to be published, how the European Union (Withdrawal) Act 2018 affects the FCA’s ability to exercise its existing waiver and modification powers in relation to rules that transpose EU directive requirements, and implications for the Handbook relating to the E-Commerce Directive, etc.

Read: The consultation paper

FCA Consults on New Rules for Non-UCITS Retail Schemes (NURS) Investing in Inherently Illiquid Assets

The FCA has issued a consultation paper on proposed new rules in its Collective Investment Schemes Sourcebook (COLL) for FCA authorised Non-UCITS Retail Schemes (NURS) investing in inherently illiquid assets. The consultation follows an FCA Discussion Paper on this topic in 2017 (DP 17/1). 

The proposed new rules would define inherently illiquid assets to include investment in immovables, such as real property, infrastructure investments, non-readily realisable securities and certain funds investing in such assets.

Through the proposed rule changes, the FCA seeks to:

• reduce the risk of incorrect pricing by requiring NURSs holding immovables to suspend trading when the Standing Independent Valuer (SIV) expresses “material uncertainty” about the value of immovables that account for a significant part of the scheme property;  
• improve liquidity management in NURSs investing mainly in illiquid assets by requiring managers to produce contingency plans for liquidity crisis events and enhancing depositaries’ oversight of the liquidity management process;  and
• improve disclosure for NURSs investing mainly in illiquid assets, by requiring more information to be disclosed about the liquidity risks, the liquidity management tools available to the fund manager, the circumstances in which they may be used and what impact they may have on investors.

The consultation closes on January 31, 2019 and the regulator will then publish a policy statement with final rules and guidance.  Changes are not expected to come into force until 2020.

Read: The consultation

UK-Hong Kong MoU on the Mutual Recognition of Funds – Includes Streamlined Recognition under FSMA s 272

The FCA and the Hong Kong Securities and Futures Commission (SFC) have entered into a Memorandum of Understanding on Mutual Recognition of Funds (MoU).  

The MoU permits certain UK retail funds (including UCITS) to benefit from a smoother recognition in Hong Kong and certain Hong Kong public funds to be distributed in the UK.  

The process for distributing Hong Kong funds in the UK is notable because it relies on a streamlined “recognition” process under Section 272 of the Financial Services and Markets Act 2000 (FSMA).  The FCA has said it aims to process applications within two months.  

Recognition under FSMA s. 272 is similar to the recognition of non-UK UCITS under FSMA s 264 in that both processes permit the recognised funds to be distributed to the public in the UK.  Whilst the Section 264 process is only open to UCITS funds, the Section 272 process is potentially open to other non-UK funds subject to requirements comparable to UK retail funds; however, the Section 272 process is generally regarded as overly cumbersome and is currently rarely used.  

After Brexit, public marketing of non-UK UCITS in the UK is likely to require recognition under Section 272 (subject to the proposed temporary permissions regime described above). The streamlined Section 272 process under the UK-Hong Kong MoU might provide an example of the sort of arrangement that could be reached for non-UK UCITS after Brexit.

Read: The MoU

Read: The FCA webpage

FCA consults on Guidance for Firms preparing for the Extended Senior Managers and Certification Regime (SM&CR)

With the extension of the SM&CR regime to all FSMA authorised firms on December 9, 2019, the FCA is consulting on guidance for FCA solo-regulated firms. The guidance aims to give practical assistance and information to firms preparing Statements of Responsibilities (SoR) and Responsibilities Maps which are required under the regime.

Comments are requested by December 10, 2018.

Read: The consultation