Out-Law News | 13 Aug 2018 | 10:07 am | 1 min. read
In a 'dear CEO' letter (2-page / 259KB PDF) to firms, FCA chief executive Andrew Bailey said that the regulator did not intend to restrict firms to particular business models, provided that their plans are "appropriate" and risks are properly managed. Bailey noted, however, that EU member states would impose their own requirements on firms seeking to shift business to the EU.
"We are aware that some authorities elsewhere in Europe have set out specific requirements as regards business models," he said.
"We are open to a broad range of legal entity structures or booking models. This includes those making use of back-to-back and remote booking, providing their associated conduct risks are effectively controlled and managed. Our starting point is therefore not to restrict business models but to understand the principles and practice involved and how the conduct risks that arise from them are managed," he said.
The letter goes on to outline some of the principles that firms should bear in mind when developing their post-Brexit operating models. In particular, firms should have a "clear rationale" for the model that they choose to adopt; should have appropriate hedging arrangements and other risk management measures in place; and should ensure broad alignment of risk and returns.
UK regulators must still be able to supervise the firm's UK activities effectively regardless of the final model chosen, and recovery and resolution plans must not be interfered with, according to the FCA. Any proposed changes should also be "in the best interests of your clients", Bailey said.
Firms must keep the FCA up to date with their proposed Brexit contingency plans, and must not take any action without first speaking to the regulator, Bailey said.
UK-based financial firms will lose their ability to 'passport' financial services to the rest of the EU if the UK exits the bloc without a formal withdrawal agreement or transitional period in place on 29 March 2019. Passporting allows firms regulated in one EU country to sell financial products and financial services across the EU without the need for separate regulatory oversight or national capital requirements.
The UK intends to introduce a 'temporary permissions regime' to allow EU-based financial services firms to continue to operate in the UK for a time-limited period in the event of a 'no-deal' Brexit. However, no reciprocal arrangements have been proposed by the EU for UK-based firms.