The Brexit transition period ended on 31 December 2020 and EEA firms that made the necessary notification are now operating in the UK’s Temporary Permissions Regime (TPR). With the rules of operating within the TPR being unfamiliar to many firms that previously relied on ‘passporting’ to trade in the UK, this article provides firms with high level guidance on the regulatory framework they will have to operate within whilst part of the TPR.

The TPR enables European Economic Area (EEA) firms that were previously passporting into the UK via the European Passporting framework, either through Freedom of Establishment or Freedom of Services, to continue to operate in the UK for a limited period, expected to be for a maximum of 3 years from the end of the transition period, until they become fully authorised. As such it applies to both EEA based firms and those subsidiaries of UK based firms which needed a Brexit solution for their EEA business.

Broadly speaking, firms in the TPR will have to comply with the same UK regulatory requirements as they did when they passported into the UK pre 31 December 2020. Matters that were reserved to the home state regulator before the end of the transition period continue to be the responsibility of the Home State in the same manner whilst a firm is in the TPR.

However, in some instances, firms in the TPR will be subject to different or additional regulatory requirements. For example, TPR firms will need to adhere to different requirements for safeguarding client money or status disclosures.

Which different or additional TPR rules firms will have to comply with will vary dependant on whether they are an Insurance Broker or MGA (FCA solo regulated firms), or an Insurer (PRA & FCA Dual Regulated firms) and if the firm is providing cross-border services into the UK or has setup a branch in the UK. The PRA and FCA have not provided a single list of rules as there are many permutations. As we are only looking at the insurance sector, we have sought to clarify the complexity and explain which rules apply to the different types of firm.

Once firms are in the TPR, they will be treated by the FCA or PRA as if they were authorised firms, precisely because they are. Firms in the TPR have temporary permissions and are therefore subject to the PRA and FCA’s supervision and rulemaking powers. These powers give regulators the right to impose requirements and to vary or revoke permissions of TPR firms. This is an important point because it is the entire firm, and not just a branch for those firms which previously operated under the Freedom of Establishment passport, that is now the subject of a temporary authorisation.

Core Requirements which apply to all firms within the TPR

Some UK regulatory requirements will apply to all firms in the TPR, regardless of whether they entered the regime on a Freedom of Establishment or Freedom of Services basis. We have outlined which rules apply to Insurance Brokers and MGA’s and Insurers below.

For EEA firms which previously passported into the UK but decided against joining the TPR or were unsuccessful with their application, they are able to wind down their UK business in an orderly fashion by entering the financial services contract regime (FSCR). The FSCR will operate for a limited time period and will allow EEA firms that previously passported into the UK to carry out regulated activities in order to continue to perform their existing contracts. Firms in the FSCR will not be able to write new UK business.

The FSCR will provide two discrete mechanisms:

• Supervised run-off (SRO)- for EEA firms with UK branches or top-up permissions in the UK, and firms which entered the TPR but did not secure a UK authorisation; or
• Contractual run-off (CRO) for continuing incoming cross-border services in order to run existing contracts off.

Insurance Brokers and MGAs

In the UK the same regulatory framework applies to everyone involved in the distribution of insurance products be they Insurance Brokers or MGA’s and others unless they are exempt. This is the same whether fully authorised or having temporary permissions by virtue of being in the TPR. Firms in the TPR will have to comply with certain FCA requirements. The key requirements include the FCA’s Threshold Conditions and Principles for Business.

Unlike for a full authorisation application, firms did not have to meet the Threshold Conditions in order to enter the TPR. However, once firms are in the regime, they will need comply with the FCA’s Threshold Conditions and Principles for Business.

The FCA’s Threshold Conditions are:

• Effective supervision: The firm must be capable of being effectively supervised by the FCA. We will cover this issue in another thought leadership article to be issued soon but essentially the FCA must have the capability to interact with management and ensure that the firm is operating appropriately, censure the firm for any failings and/or require remediation when things have gone awry.
• Appropriate non-financial resources: A firm’s non-financial resources must be appropriate in relation to the regulated activities it seeks to carry on, having regard to the FCA’s operational objectives. In essence, there must be suitable governance arrangements, technology, human resources and other resources to ensure that the business can operate effectively.
• Suitability: The firm must be fit and proper. The firm’s management and other employees are required to have adequate skills and experience to act with integrity (fitness and propriety) and have appropriate policies and procedures in place and appropriately manage its’ conflicts of interest.
• Business model: The firm’s strategy for doing business must be suitable for an organisation carrying on the regulated activities it undertakes or seeks to carry on and must not pose a risk to the FCA’s objectives.

A firm failing to meet these core requirements is very likely to lose its’ permissions to conduct insurance business in the UK. In the case of a firm in the TPR this will mean the removal of their temporary permissions and a ban on trading in the UK if the breach is significant enough and that breach cannot be rectified in a short timeframe to the satisfaction of the FCA.

The FCA has 11 Principles for Businesses which set out the main regulatory obligations and high-level standards that Insurance Brokers and MGA’s in the TPR must adhere to. These are:

1. Integrity- A firm must conduct its business with integrity.
2. Skill, care and diligence- A firm must conduct its business with due skill, care and diligence.
3. Management and control- A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
4. Financial prudence- A firm must maintain adequate financial resources.
5. Market conduct- A firm must observe proper standards of market conduct.
6. Customers’ interests- A firm must pay due regard to the interest of its customers and treat them fairly.
7. Communications with clients- A firm must pay due regards to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading.
8. Conflicts of interest- A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
9. Customers: relationship of trust- A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.
10. Clients ‘assets- A firm must arrange adequate protection for clients’ assets for which it is responsible.
11. Relations with regulators- A firm must deal with its regulators in an open and co-operative way and must disclose to the FCA anything relating to the firm of which the FCA would reasonably expect notice.

This latter rule would require, for example, a firm to advise the FCA if it was in material breach of the Threshold Conditions or the other Principles for Business.

For many firms in the TPR the UK approach to principles-based regulation will be new. The FCA has some specific rules and requirements but more often than not when a firm fails to meet the FCA’s expectations any consequential proceedings will be based on the 11 Principles for Business rather than the specific rules. The most common of these have been proceedings under Principle 6 (often referred to as PRIN 6), known in the UK as the Treating Customers Fairly requirement. Recently, with the introduction of the Insurance Distribution Directive in 2018 in the UK further rules to support PRIN 6 have been created. However, most of the detail of what the FCA expects from the firms which it regulates is not contained in the legislation.

This can make it quite difficult for non-UK firms to understand what they must do to comply and often there is an element of doubt given that the FCA approach is also tilted towards “proportionate” regulation, another undefined term. Firms which are used to the EEA regulatory model where they are subject to Code-based laws may be concerned about whether their business model and approach to the distribution of insurance products meets FCA expectations. However, there is guidance, it is just that it is not that easy to find and sometimes a little difficult to interpret.

Guidance generally comes in one of a few forms:

• Policy Statements which the FCA issues after consultation. These set out what the FCA expects of a firm. They can be long and are often cross-sectoral so cover banking, insurance and other financial services, leaving firms to interpret them to be able to apply them in their own sector. A relatively recent example is Policy Statement 17/7 on the implementation of the Insurance Distribution Directive in the UK. Policy Statements usually also include draft legislative changes and can run to many pages. In this case 100 + pages.
• Guidance documents issued by the FCA. These are also issued after consultation. A recent example is Final Guidance 21/1 on the Fair Treatment of Vulnerable Customers which runs to 50 + pages and an older example but one which is still relevant, the TCF Guide to Management Information which sets out the MI which a firm should have available to ensuring that customers are being treated fairly.
• Strategic documents such as the FCA’s Approach to Consumers from 2018.
• Annual Business Plans (such as the 2020/21 Business Plan) which set out the areas of focus and FCA activity for a twelve-month period.
• The outcomes of regulatory proceedings where a firm has been subject to discipline and which are also published by the FCA.

It is well beyond the scope of this article to seek to outline all of this secondary material. It can be difficult enough to find it on the FCA website if you don’t know where to look, let alone seek to try to summarise all of it. The important point is that firms in the TPR need to be aware that while there are few specific FCA rules which apply, the high-level Principles apply and consequently there is a lot of secondary material which sets out the FCA’s expectation of authorised firms as to what and how they must comply with the PRIN. The approach is comply or explain but generally Guidance should be treated effectively as the FCA’s statements on what is required.

The best advice we can offer is to seek advice on your business model and distribution approach if you are unsure whether your operating model, including development and distribution of insurance products meets FCA expectations.

Insurers

In the UK Insurers are dual regulated firms, which means they are authorised by the PRA for prudential requirements and by the FCA for conduct. This same regulatory framework will apply to Insurers in the TPR. Therefore, firms will have to comply with both PRA and FCA regulatory requirements including the FCA requirements set out above. Additional to those are the PRA Fundamental Rules which are sufficiently similar to the FCA Principles for Business as to be unlikely to lead to a conflict between them.

The PRA Fundamental Rules are high-levels rules which collectively act as an expression of the PRA’s general objective of promoting the safety and soundness of regulated firms.

The PRA’s Fundamental Rules are:

1. A firm must conduct its business with integrity.
2. A firm must conduct its business with due skill, care and diligence.
3. A firm must act in a prudent manner.
4. A firm must at all times maintain adequate financial resources.
5. A firm must have effective risk strategies and risk management systems.
6. A firm must organise and control its affairs responsibly and effectively.
7. A firm must deal with its regulators in an open and co-operative way and must disclose to the PRA appropriately anything relating to the firm of which the PRA would reasonably expect notice.
8. A firm must prepare resolution so, if the need arises, it can be resolved in an orderly manner with a minimum disruption of critical services.

If an Insurer was found to have breached one of the PRA’s Fundamental Rules or the FCA’s Principles of Business, regulatory enforcement action may be taken. The PRA also use Policy Statements after consultation in a similar way to the FCA. These also include the draft of the legislation or rules to be implemented following the consultation. However, the PRA is less active in issuing guidance meaning that the principal place to find the rules which apply is the rules themselves.

As with the position for brokers and MGAs who are regulated only by the FCA, Insurers were not required to demonstrate that they satisfied the Threshold Conditions in order to enter into the TPR. However, whilst in the TPR, Insurers are required to notify the PRA or FCA if they become aware that they have failed or may fail to satisfy one or more of the relevant Threshold Conditions. Any Insurer which fails to satisfy one of the Threshold Conditions, may see the PRA or FCA restrict or cancel their temporary permissions.

Therefore, it is important that a firm’s board of directors is aware of the Threshold Conditions that apply and are able to monitor compliance with those requirements. The PRA Threshold Conditions for insurers are:

• Legal Status: Insurers must be a body corporate (that is a company other than a limited liability partnership), a registered friendly society, or member of Lloyd’s.
• Location of offices:
  • (i) a UK incorporated corporate body must maintain its head office, and, if one exists, its registered office in the United Kingdom.
  • (ii) If your firm is not a body corporate but your head office is in the UK, you must carry on business in the UK. This obviously does not apply to EEA or other firms which are seeking to trade in the UK through a branch.
• Prudent conduct of business: Your firm must conduct its business in a prudent manner, which includes having appropriate financial and non-financial resources. Financial resources for insurers requires capital to be maintained in accordance with Solvency II rules, though there appears to be the possibility of changes in the UK to the capital requirements post-Brexit. Non-financial resources effectively means the same as for the FCA: A firm’s non-financial resources must be appropriate in relation to the regulated activities it seeks to carry on, having regard to the FCA’s operational objectives. In essence, there must be suitable governance arrangements, technology, human resources and other resources to ensure that the business can operate effectively.
• Suitability: The firm must satisfy the PRA that it is “fit and proper” with regard to all circumstances to conduct regulated activity. The firms management must have adequate skills and experience to act with integrity.
• Effective Supervision: Your firm must be capable of being effectively supervised by the PRA. As with the FCA this means that the PRA must have the capability to interact with management and ensure that the firm is operating appropriately, censure the firm for any failings and/or require remediation when things have gone awry.

Specific Requirements which apply to firms in the TPR with a Branch in the UK

In this section we have outlined which requirements Insurance Brokers, MGA’s and Insurers will have to comply with whilst in the TPR, if they have a branch in the UK.

1. Insurance brokers or MGAs with a Branch in the UK

Broadly, the rule of thumb for Insurance Brokers or MGAs in the TPR, is that the FCA rules that applied to EEA Branches passporting into the UK prior to the TPR, will continue to apply to those firms once in the TPR. For instance, the following Senior Management Arrangements, Systems and Controls(SYSC) will apply:

• SYSC 3 Systems and Controls: A firm must take reasonable care to establish and maintain such systems and controls as are appropriate to its business, but only in so far as responsibility for the matter in questions it not reserved to the firms’ home state regulator.
• SYSC 9- Record Keeping: a firm must arrange for orderly records to be kept of its business and internal organisation. This will apply to all activities carried on from an establishment in the UK.
• SYSC 18 – Whistleblowing: a firm must have appropriate internal procedures in place to deal with Whistleblowers.
• SYSC 19F.2: a firm must not be remunerated or remunerate or assess the performance of their employees in a way which conflicts with the firm’s duty to comply with the customer’s best interests rule.
• SYSC 22 & 23, 25.6, 27 set out the Senior Managers and Certification Regime requirements for firms, which we have expanded on in greater detail later on in this document.

SYSC 4,5,6,7,8,10,12, 13,14,15,16,17, 19A, 19B, 19C, 19D, 24, 26 and 28 do not apply.

All “Insurance: Conduct of Business Sourcebook” (ICOBS) rules apply, except to the extent necessary to be compatible with European Law. The following are examples of ICOBS that will apply to Insurance Brokers or MGAs with an establishment in the UK:

• ICOBS 2.4 Record keeping: firms need to decide what records they need to keep, in order to comply with SYSC 9. For example, firms will need to keep a record of any personal recommendations provided to customers, the documentation which has been provided to customers (Policy documents, TOBAs etc)
• ICOBS 3: Distance Marketing rules, a firm that carries on any distance marketing activity from an establishment in the UK with or for a consumer in the UK, will need to comply with these ICOBS 3.
• ICOBS 4: firms must comply with the FCA customers best interests’ rule, PRIN 7 covering communications with clients, means of communicating to customers, remuneration disclosure and status disclosure. With regards to Status Disclosure, we have set out in greater detail that requirement later in this article.
• ICOBS 5: firms will need to comply with the requisite Demands and Needs and Advised/Non-advised sales requirements.
• ICOBS 6: firms will need to comply with the various rules on providing information to customers’, which includes IPIDs.
• ICOBS 8.3: applies to insurance brokers and MGAs that handle claims.

Firms will be required to complete and return the FCA’s Retail Mediation Activities Return (RMAR), all be it not a full return compared to fully authorised FCA firms. Insurance Brokers and MGA’s will also be expected to report Conduct Rules breaches to the FCA within the appropriates timeframes for Senior Managers, NEDs and all other staff.

Additional rules will also apply, which we have outlined below. The FCA believe additional rules are necessary in order to provide an appropriate level of consumer protection.

Client Assets Sourcebook 14

For TPR firms that hold or receive client money, new rules set out in Client Assets sourcebook (CASS) 14 will apply to its UK business. CASS 14 sets out CASS firm classification for TPR firms, the CASS returns that firms will need to comply with (that is the documents which they must file regularly with the FCA) as well as what information will need to be provided to clients.

Status Disclosure

Firms must disclosure in documentation provided to UK retail customers that the firm is in the TPR.

Insurance Brokers or MGA’s with a UK establishment, with UK retail customers, without a top-up permission, are required to make the following status disclosure on relevant documents:

“Deemed authorised and regulated by the Financial Conduct Authority. Details of the Temporary Permissions Regime, which allows for EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conducts Authority’s website”.

Insurance Brokers or MGA’s with a UK establishment, with UK retail customers, with a top-up permission, are required to make the following status disclosure on relevant documents:

“Authorised by the Financial Conduct Authority and with deemed variation of permission. Subject to regulation by the Financial Conduct Authority. Details of the Temporary Permissions Regime, which allows EEA- based firms to operate in the UK for a limited period, while seeking full authorisation, are available on the Financial Conduct Authority’s website.”

A top up permission is required, if an Insurance Broker or MGA in the EEA did not have a right and/or did not wish to exercise a right to carry on a particular regulated activity in the UK prior to Brexit but now wishes to carry on that right. In these circumstances, the firm must seek a Part 4A permission from the FCA to do so.

Senior Managers and Certification Regime (SM&CR)

While in the TPR, Insurance Brokers and MGA’s with a UK establishment (branch) should continue to comply with the requirements of the SM&CR that applied to EEA Branches.

The following Senior Manager Function (SMFs) will be applicable to TPRs with a UK establishment:

• SMF21 – EEA Branch Senior Manager: This is the person or person responsible for the management and conduct of the business of the incoming branch.

The FCA would typically expect SMFs who are directly involved in managing the firm’s UK activities to spend an adequate and proportionate amount of their time in the UK to ensure those activities are suitably controlled. SMFs at international firms who have responsibilities for the UK branch that are purely strategic may not be required to be based in the UK.

A statement of responsibilities will need to be drafted for each SMF, but Prescribed Responsibilities are not required to be allocated. A Duty of Responsibility and Fit and Proper requirements will apply to each SMF. Therefore, firms will need to carry out criminal and credit reference checks on SMFs as part of their application to the FCA, along with gathering regulatory references, if the SMF is an external hire.

The Certification regime may apply to other staff at the TPR branch, if the firm considers individuals performing certain roles to be within scope of the regime. Fit and Proper requirements will apply to certified staff, although criminal reference checks are not mandatory. Regulatory references will need to be sought for any external certified staff hires before an appointment is made.

The Conduct rules will also apply to the Senior Managers, Certified Staff and most other employees at the TPR branch. A Responsibilities Map and Handover Procedures are not required.

2. Insurers with a Branch in the UK

Insurers in the TPR with a Branch in the UK, are required to comply with FCA rules which applied to EEA branches pre 31 December 2020 (as we have set out in the Insurance Brokers or MGAs with a Branch in the UK, section of this article, with the addition of ICOBS 8 Insurer also applying) and the PRA rules that currently apply to Third Country Branches (subject to transitional relief). For example, Insurers in the TPR must appoint an Auditor and comply with the Solvency Capital Requirement and Minimum Capital Requirement for third country branches. Firms will also be expected to comply with modified Conditions for Governing Business and comply with Reporting requirements as set out in 2.1 to 2.5 of the rulebook.

These rules apply with a few additional requirements, as set out below.

Status Disclosure

Firms must disclosure in documentation provided to UK retail customers that the firm is in the TPR.

Insurers with a UK branch, without a top-up permission and with UK retail clients, the following status disclosure will need to be made on the relevant documents:

“Authorised and regulated by [name of the overseas regulator of your firm in which its EEA office is registered]. Authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking authorisation, are available on the Financial Conduct Authority’s website.”

Insurers with a UK branch, with a top-up permission and with UK retail clients, the following status disclosure will need to be made on the relevant documents:

“Authorised and regulated by [name of the overseas regulator of your firm in which its EEA office is registered]. Authorised by the Prudential Regulation Authority and with a deemed variation of permission. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking authorisation, are available on the Financial Conduct Authority’s website.”

A top up permission is required, if an Insurer in the EEA does not have an EEA right and/or does not have, or does not wish to exercise a treaty right to carry on a particular regulated activity in the UK, it must seek a Part 4A permission from the PRA of FCA to do so.

Senior Managers and Certification Regime (SM&CR)

Insurers are required to comply with the following PRA and FCA SM&CR requirements and individuals within the firm will need to be approved by the regulator to carry out the following mandatory Senior Management Functions (SMFs):

• SMF 19- Head of Overseas Branch (PRA)
• SMF17- Money Laundering Reporting Officer (FCA)
• SMF 21 – EEA Branch Senor Manager (FCA)

Other SMFs may apply, if a firm is required to have individuals carry out these functions by the PRA rulebook. These include:

• SMF2- Chief Finance (PRA)
• SMF4- Chief Risk (PRA)
• SMF5- Head of Internal Audit (PRA)
• SMF7- Group Entity Senior Manager (PRA)
• SMF24- Chief Operations (PRA)

For the PRA SMFs the following Prescribed Responsibilities will need to be allocated to those individuals:

• Compliance with the UK regulatory system applicable to the firm
• Managing the process of obtaining full authorisation

These Prescribed Responsibilities will only apply whilst a firm is in the TPR. Once fully authorised the full list of Prescribed Responsibilities that are currently applicable to Third Country Branches will be applicable.

For the FCA SMFs no Prescribed Responsibilities will apply.

You will be required to draft a Statement of Responsibilities for each SMF holder and also a Responsibilities Map is required. The Certification Regime, Fit & Proper rules and Conduct Rules will also apply to your Insurers in the TPR.

Requirements which apply to firms in the TPR operating on a cross-border basis into the UK

In this section we have outlined which requirements Insurance Brokers, MGA’s and Insurers will have to comply with whilst in the TPR, if they are operating in the regime on a cross-border basis.

Insurance Brokers or MGAs operating via Cross Border services into the UK

Broadly, the FCA rules that applied to Insurance Brokers and MGA’s passporting into the UK via freedom of services pre 31 December 2020, will continue to apply to those firms whilst operating in the TPR on a cross-border basis. For instance, parts of SYSC, for example, SYSC 2 Senior management arrangements and SYSC 3 Systems and Controls do not apply for cross borders services when the firm does not carry-on regulated activities in the UK. However, the following SYSC do apply:

• SYSC 9: Record Keeping: a firm must arrange for orderly records to be kept of its business and internal organisation, will apply to all activities carried on from an establishment in the UK.
• SYSC 18: Whistleblowing: a firm must have appropriate internal procedures in place to deal with Whistleblowers.

SYSC 4, 5, 6, 7, 8, 10, 12, 13, 14, 15, 16,17, 19A, 19B, 19C, 19D, 19F, 22, 23, 24, 25, 26, 27 and 28 do not apply.

Most of the ICOBS will not apply to firms providing services on a cross border basis. As the Insurance Distribution Directive placed the responsibility for requirements in the FCA handbook within the Directives scope on your firms Home State regulator. ICOBS 8.4 Employer Liability Insurance will apply, if applicable to your firms’ activities.

In regard to regulatory reporting, firms providing cross border services are not required to complete and return the FCA’s Retail Mediation Activity Return (RMAR).

However, the FCA has imposed certain additional rules for Insurance Brokers and MGA’s in the TPR, which the regulator believes are necessary to provide appropriate consumer protection. We have outlined most of these additional requirements below.

Status Disclosure

Firms must disclosure in documentation provided to UK retail customers that the firm is in the TPR.

Insurance Brokers or MGA’s providing cross border services to UK retail clients, without a top up permission, are required to make the following status disclosure:

“Deemed authorised and regulated by the Financial Conducts Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of Temporary Permissions Regime, which allows for EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.”

Insurance Brokers or MGA’s providing cross border services to UK retail clients, with a top up permission, are required to make the following status disclosure:

“Authorised by the Financial Conducts Authority and with deemed variation of permission. Subject to regulation by the Financial Conduct Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of Temporary Permissions Regime, which allows for EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.”

A top up permission is required, if an Insurance Broker or MGA in the EEA does not have an EEA right and/or does not have or does not wish to exercise a treaty right to carry on a particular regulated activity in the UK, it must seek a Part 4A permission from the PRA of FCA to do so.

Senior Managers and Certification Regime

SM&CR does not apply to Insurance Brokers or MGA’s in the TPR that are operating on a cross-border basis. However, firms should take account of the SM&CR when considering plans to apply for full authorisation in the UK.

Insurers operating via Cross Border services into the UK

For firms in the TPR without a branch in the UK, a more limited set of FCA rules will apply, as outlined in the earlier section of this article “Insurance Brokers and MGA’s Operating via Cross Border services into the UK”. With the addition of ICOBS 8.2 Motor vehicle liability insurers applying if your firm operates in the motor vehicle insurance space.

Sections of the PRA rulebook will also apply. These are:

• Auditors: firms are required to appoint an Auditor.
• Change in Control & Close Links: firms are required to notify the PRA should a change in control occur.
• Fees: firms will be expected to pay certain regulatory fees.
• General Provisions: certain general provision will apply including disclosures to retail clients.
• Information Gathering: firm must take reasonable steps to ensure its agents, Appointed Representatives and suppliers deal in an open, cooperative and timely way with the PRA.
• Notification: a firm must notify the PRA if a number of circumstances occur, this includes if the firm becomes aware that they have failed to satisfy one or more of the Threshold conditions.
• Use of Skilled Persons: there are various requirements firms need to comply with when using a skilled person.

In general, the rules in the FCA handbook that applied to EEA firms passporting into the UK via Freedoms of services before 31st December 2020, will continue to apply to firms whilst they are in the TPR, but a TPR firm may also be subject to additional or new requirements.

Status Disclosure

Firms must disclosure in documentation provided to UK retail customers that the firm is in the TPR.

Firms which are dual regulated, who provide cross-border services to UK retail clients, without a top-up permission, are required to make the following status disclosure:

“Authorised and regulated by [name of the overseas regulator of your firm in which its EEA office is registered]. Authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking authorisation, are available on the Financial Conduct Authority’s website.”

Firms which are dual regulated, who provide cross-border services to UK retail clients, with a top-up permission, are required to make the following status disclosure:

“Authorised and regulated by [name of the overseas regulator of your firm in which its EEA office is registered]. Authorised by the Prudential Regulation Authority and with deemed variation of permission. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking authorisation, are available on the Financial Conduct Authority’s website.”

A top up permission is required, if an Insurer in the EEA does not have an EEA right and/or does not have or does not wish to exercise a treaty right to carry on a particular regulated activity in the UK, it must seek a Part 4A permission from the PRA of FCA to do so.

Senior Managers and Certification Regime

Insurers in the TPR firms operating on a cross-border basis are in scope of the PRA’s SM&CR.

Therefore, these firms will need to allocate SMF 19 Head of Oversea Branch to an individual at the firm.

The following Prescribed Responsibilities will need to be allocated to the SMF:

• Compliance with the UK regulatory system applicable to the firm
• Managing the process of obtaining full authorisation

An Insurer operating on a cross-border basis will also need to comply with the Certification Regime, Fit & Proper rules and the Conduct Rules.

Conclusion

Navigating the rules of the Temporary Permissions regime requires a clear understanding of the status of your firm and the rules that are applicable, along with an understanding of the principles-based approach to regulation used within the UK. Your approach should recognise that whilst the TPR has a time-limited existence, the reality is that the vast majority of rules will in any event apply once your firm achieves full UK authorisation.

If you require further guidance on anything mentioned in this article, please do contact us. ICSR is available to assist firms in understanding the TPR process, including managing SMF applications, and in making authorisation applications once they have been provided with a landing slot.

Craig Umbleja

Senior Consultant
Implement Compliance Solutions & Resources

On 5th May at 11am, we will be hosting a webinar looking at the regulations that apply to International Firms who have been accepted into the Temporary Permissions Regime. Register now to join us. All registered attendees will be sent a copy of the recording afterwards.