On 19 November 2020, the Luxembourg regulator (“CSSF“) issued press release 20/23, on behalf of the UK Financial Conduct Authority (“FCA”) wishing to address Luxembourg-based entities regarding the UK Temporary Permissions Regime (“TPR”) following the Brexit.

As such, it is reminded that the TPR will enable Luxembourg based firms and funds operating in the UK through the passport regime to continue their activities in the UK from the end of the transitional period. In order to benefit from the TPR, the FCA will have to be notified so as to start authorization and recognition proceedings. The press release 20/23 addresses three (3) key points:

  • For firms and funds passporting into the UK, the notification window for the TPR has reopened on 30 September 2020, allowing to submit or update previously notifications, as the case may be;
  • If firms hold a passport and have already notified the FCA but that do not require a UK authorization (i.e. because they do not wish to pursue business in the UK), they should withdraw their TPR notification and cancel their passport; and
  • For firms or funds with a passport to the UK that do not enter the TPR but wish to perform an existing contract, the Financial Services Contracts Regime (“FSCR”) will automatically apply in order to wind down their UK business. As a consequence of the aforementioned, firms in the FSCR will not be able to perform new business in the UK.

On 23 September 2020, the FCA issued the consultation paper 20/20 for firms or funds that wish to undertake regulated activities in the UK on an on-going basis and how the FCA will assess these international firms against minimum standards. Substantially the content of the consultation paper is the following:

Scope of application

The consultation paper applies (i) to European Economic Area (“EEA”) firms that have applied for authorization in the UK or intend to do so (including the TPR) and (ii) international firms from non-EEA countries that are authorized in the UK, or that have applied or intend to do so.

This consultation paper does not apply to (i) depositaries, trustees and managers of UK authorized funds (including UK undertakings for collective investment (“UCITs”)), as such entities are supposed to be incorporated and administered in the UK; (ii) international alternative investment firms (“AIFs”) managers, after the transition period as only firms with their registered office in the UK can obtain permission to manage an AIF.


The FCA states that firms having notified their intention to enter the TPR will be allowed to continue their UK business within the scope of their current permissions for a limited period after the end of the transition period, while they wait to be called by the FCA to submit their applications for full UK authorization. If an EEA firm or fund do not obtain a permanent authorization, the FSCR will apply until its contracts in the UK expire.

Firms and funds seeking an authorization will rely on Part 4A of the Financial Services and Markets Act 2000 (“FSMA”), setting out the threshold conditions in its schedule 6 (as well as the Cond part of the FCA’s handbook). Other legislations may set threshold conditions, similar to those of the FSMA.

With the FSMA, the FCA seeks to (i) secure an appropriate degree of protection for consumers; (ii) protect and enhance the integrity of the UK financial system and (iii) promote an effective competition in the interests of consumers. The consultation does not seek to challenge or amend the threshold conditions of the FSMA.

Minimum standards

  • Branch or subsidiary: the FCA will consider as to whether there is a heightened potential to cause harm from the activities being undertaken from a branch and whether the risks can be adequately mitigated. The FCA will also consider the nature and scale of the activities the international firm intends to conduct from outside the UK. Therefore, the FCA recommends to rather operate through an UK-incorporated subsidiary;
  • Risk of harm: the FCA will consider the following;
    • Protection for the UK office’s retail customers, through redress and supervisory oversight for example, could be less effective, especially if the international firm becomes insolvent or exits the UK (‘retail harm’);
    • The UK rules that protect client money or custody assets safeguarded through the UK office and the home state insolvency regime which become applicable if the international firm fails may not be aligned (‘client assets harm’); and
    • Shocks or risks that originate from the international firm’s overseas offices could, in some circumstances, be more difficult to detect or prevent and could be passed easily to its UK office, affecting the stability and integrity of the UK markets in which it operates or to which it is connected (‘wholesale harm’).

Mitigation of those above-mentioned risks will be considered on a case-by-case basis.

Following an assessment, the FCA may impose (i) limitation to the activities performed by the firms or funds and (ii) requirements to refrain from taking certain actions, in order to comply with the minimum standards on an ongoing basis. In case of noncompliance the FCA may refuse the firms or funds to perform the requested regulated activities.

To sum up the above, an international firm or fund that performs or plans to perform any activity requiring an authorization needs to demonstrate that it (i) is ready, willing and organized and (ii) meets the relevant minimum standards.

The FCA will then consider, (a) the nature of the operations; (b) the personnel and decision making process; (c) the systems and controls in place; (d) the factors related to the home state and lastly (e) adequate mitigation process against the retail, client assets and wholesale harm.

The consultation closes on 27 November 2020.

The consultation paper can be accessed here and the CSSF press release 20/23 here.