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Brexit and financial services: the Temporary Permissions Regime and Financial Services Contracts Regime

Posted: 12/03/2021

The UK left the EU on 31 January 2020 and entered into a ‘transition period’, during which EU law continued to apply directly in the UK. The transition period ended at 11pm on 31 December 2020 (referred to in section 39 of the European Union (Withdrawal Agreement) Act 2020 as ‘IP Completion Day’). Up until IP Completion Day, EEA financial services firms were able to continue using the EU passporting regime to carry out regulated activities in the UK, either under a services passport or a branch passport.

However, the passporting rights EEA financial services firms enjoyed have now ceased. Now, the only ways in which EEA firms (unless directly authorised in the UK by the FCA or PRA) are permitted to continue carrying out regulated activities in the UK is by having opted in to the Financial Conduct Authority’s (FCA) Temporary Permissions Regime (TPR) and becoming a ‘TP firm’, or by carrying out those activities under the Financial Services Contracts Regime (FSCR).


The FCA has stated that the TPR will last for a maximum of three years. During this time, a TP firm is given ‘permission to carry on regulated activities … by the FCA or PRA under Part 4A of FSMA’ - known as ‘Part 4A permissions’. This allows an EEA firm to continue carrying out the same regulated activities throughout the TPR period as it was permitted to do so under the old passporting regime as at IP Completion Day, as if it were fully authorised by the FCA/PRA to do so.

However, once the TPR comes to an end, deemed authorisation will similarly fall away. Therefore, a TP firm wishing to continue its regulated activities in the UK must apply for full UK authorisation whilst in the TPR. To facilitate this, the FCA is allocating each TP firm a ‘landing slot’ in which to submit its application for full UK authorisation. The application will need to explain how the firm intends to meet the FCA’s threshold conditions and how its UK business will be structured. Firms will also need to make sure that they have made the necessary preparations to comply with the various FCA and PRA rules that will apply to them after the TPR ends.

The FCA has also informed firms that they are not able to apply for temporary ‘top-up permissions’ (permission to carry out activities outside of the scope of their passporting rights) during the TPR. Instead, the FCA has stipulated that firms wishing to expand the list of regulated activities which they are authorised to carry out in the UK must submit an application for full UK authorisation and include in the list those new regulated activities for which they seek Part 4A permissions.


The FSCR is an alternative route for firms which did not opt in to the TPR and for those that opted in to the TPR but were subsequently unsuccessful in obtaining full UK authorisation. The FSCR enables such firms to wind down their regulated business in the UK in a manner which mitigates contract continuity risks and reduces the likelihood of significant market disruption.

The FSCR allows a firm to continue providing regulated activities in the UK in respect of its existing contracts only for a limited amount of time, through the following two mechanisms:

The Supervised Run-Off (SRO) – firms are given Part 4A permissions to carry out activities necessary to service their existing UK contracts and some limited ancillary activities.

The SRO applies to EEA firms that: 

  • have UK branches but did not opt to enter into the TPR;
  • entered the TPR but were not able to obtain full UK authorisation; or
  • held top-up permissions before the UK’s exit from the EU and either had a branch or services passport.

Firms in the SRO are required to provide the FCA with a run-off plan prior to their entry into the SRO. This should detail the firm’s plans to eventually end its UK regulated business. A firm in the SRO will be required to update the FCA yearly on its progress.

The Contractual Run-Off (CRO) – unlike in the SRO, firms are not deemed authorised to carry out regulated activities. Instead, firms enjoy a limited exemption to the general prohibition (of carrying on a regulated activity in the United Kingdom unless authorised) for the purposes of winding down their business only. Accordingly, the CRO allows firms to carry out regulated activities which are necessary to perform existing contracts and carry out limited ancillary activities.

The CRO applies to EEA firms that formerly operated in the UK on a services passport, did not have top-up permissions immediately before the end of the transition period and did not opt in to the TPR. As firms in the CRO are not regulated by UK regulators, it is a prerequisite that they maintain home state authorisation to carry out the regulated activities they intend to continue carrying out in the UK.

For firms in both the SRO and CRO regimes, the duration of the FSCR will be five years from IP Completion Day (with the exception of insurance contracts which will have a time limit of 15 years), by which time firms must have wound down all their UK business.

Unlike the TPR, entry into the CRO and SRO regimes was automatic upon IP Completion Day; however, the FCA requires that all firms which entered into the CRO regime notify it of entry. Only EEA authorised payment institutions, EEA authorised e-money institutions or EEA registered account information service providers need to notify the FCA about their entry into the SRO.


The TPR and FSCR were introduced in order to ensure continuity of business despite the transition period coming to an end. However, it is clear that these regimes will have an end date and it is important that by this time all firms that are currently able to continue providing regulated services in the UK by virtue of the TPR and FSCR must either have obtained full UK authorisation or entirely wound down their UK regulated business.

Although the EU-UK Trade and Cooperation Agreement (which provisionally came into effect on IP Completion Day, but at the time of writing has not yet been ratified by the EU Parliament) did not contain any provisions regarding financial services, it did contain an ancillary Joint Declaration on Financial Services Regulatory Cooperation between the European Union and the United Kingdom. This expressed a desire by the EU and the UK to establish structured regulatory cooperation on financial services, with the aim of creating a durable and stable relationship between autonomous jurisdictions, and an agreed memorandum of understanding setting out the framework for this cooperation by 31 March 2021. However, the prospects of reaching an agreement on such a framework, in particularly by the end of March, are now looking increasingly remote.

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