Clients of companies from the European Economic Area that are established in the UK will have access to protection under the Financial Services Compensation Scheme in the event of a no-deal Brexit, the regulator has stated.
In near final final rules published today (February 28) the Financial Conduct Authority confirmed customers of EEA firms in the temporary permissions regime will have cover equivalent to that available for customers of other UK authorised firms.
The regulator said it intended to extend the cover as Brexit could otherwise result in customers of incoming EEA firms losing compensation scheme protection offered by home states, depending on the terms of the withdrawal.
Most incoming EEA firms are not covered by the FSCS under its rules but they may be covered by a home state compensation scheme if they undertake certain activities in the UK, for example, as Mifid investment firms.
The FCA stated the compensation schemes across the EEA offered varying levels of cover in terms of scope and the amounts of compensation that could be paid for a claim.
The policy statement read: "There is currently no guarantee that home state compensation schemes will continue to cover consumers of UK business (where eligible) after Brexit.
"Our changes will help to ensure that customers continue to have coverage, now through the FSCS rather than the home state compensation scheme, during the temporary permissions regime when dealing with UK establishments."
The regulator stated EEA firms covered by the FSCS in the temporary permissions regime will be required to contribute to the FSCS levy from April 1, 2019, even if they were not covered by the FSCS before exit.
The FCA said the majority of respondents to its consultation on the matter had agreed with the regulator’s proposals, although one suggested extending the FSCS coverage would be disproportionate for firms.
This respondent suggested incoming firms would have to pay levies twice and consumers "would be able to make two separate claims for one loss in the event of firm failure".
In its response, the FCA said: "The FSCS must take into account payments already made to the claimant.
"The possibility of a consumer trying to access compensation from two different schemes already exists. So, the proposed approach is not a change in policy."
Nausicaa Delfas, executive director of international at the FCA, said: "The FCA has been preparing for a range of scenarios, including the possibility that the UK leaves the EU in March 2019 without an implementation period.
"The documents published today are a significant milestone in this work: they ensure that there is a functioning regulatory regime from day one, and that firms are clear as to the requirements they need to meet by end March 2019 and beyond, so they can continue to meet the needs of their customers."
rachel.addison@ft.com
