Out-Law News | 07 Jan 2019 | 4:09 pm | 2 min. read
The note (7 page / 316KB PDF) includes answers to frequently asked questions on how the SMCR is currently applied to EEA and third country branches and on how the PRA and FCA propose the SMCR will apply to dual-regulated European Economic Area (EEA) firms currently operating in the UK via a branch using the establishment passport and that are entering the TPR.
The note makes it clear that the TPR, including with regard to the proposals on the SMCR in the note that relate to it, will only apply if there is no transition or implementation period in place following the UK’s departure from the EU on 29 March.
The TPR will allow EEA firms using a passport to operate for a limited period, while they seek PRA or FCA authorisation as applicable, when the passporting regime falls away after the UK leaves the EU. It will enable EEA firms carrying out PRA or FCA regulated activities in the UK through a Freedom of Establishment or Freedom of Services passport to continue those activities for a maximum of three years.
However if a transition or implementation period is agreed and takes effect, the current SMCR requirements for both EEA and third country firms are expected to remain in place until its end.
The PRA is proposing to apply its SMCR requirements for branches of non-EU countries to EEA branches which enter into the TPR. That means that all PRA firms in the TPR will have to have at least one individual who will be treated as if they have been approved for the 'head of overseas branch' function, which is already a mandatory senior management function for third-country branches. For such firms while they are in the TPR this will be referred to as a 'deemed TPR approval'.
According to the PRA firms which need to gain deemed TPR approval for individuals who will be performing PRA senior management functions while their firm is in the TPR, can either submit a full SMF application for all the relevant individuals accompanying the Part 4A application before the UK's exit date, or make a streamlined 'TPR SMF application' within 12 weeks of entering into the TPR.
The FCA, meanwhile, is proposing to maintain its current SMCR requirements for EEA branches for any such branches that enter the TPR, and individuals already approved to act in senior management functions 17 (Money laundering reporting function) and 21 (EEA branch senior manager function) for such EEA branches would remain approved while the branch is in the TPR.
Individuals in EEA branches entering the TPR would therefore need to obtain FCA approval for senior management functions which apply under the FCA’s third-country branch rules, and only if and when the branch successfully applies for permanent authorisation as a third-country branch.
The note also clarifies the interaction of the FCA's and PRA's different proposals on applying the SMCR to firms in the TPR. This is to some extent because the FCA has already tailored SMCR requirements for EEA branches, but the PRA does not.
Both regulators are seeking the same objectives for applying their proposals on the SMCR to firms in the TPR, to ensure effective but proportionate accountability, and to incentivise firms which want to seek approval as third-country branches to develop their local senior management and internal control framework while in the TPR.
The UK government published draft legislation in July setting out how the TPR will apply to financial services firms if Brexit takes place without an implementation period.