European fund managers will have to notify the Financial Conduct Authority (FCA) of their intention to continue offering their funds in the UK after Brexit if no deal on a transitional period is reached.
In March the UK and the EU reached agreement on the terms of a transitional period following the UK’s withdrawal from the EU.
The transitional period is intended to be effective from 29 March 2019 until the end of December 2020 and during this time EU rules will continue to apply, which means the passporting regime, which allows EU firms to operate in the UK, will continue to exist.
But the FCA has said it is preparing for a range of scenarios, including one in which no such deal on passporting is reached by March, so it is drawing up a temporary permissions regime as a backstop.
As part of this the regulator has said it would expect to start accepting notifications from funds in early January 2019, with the window closing before Britain leaves the European Union on Friday 29 March.
The FCA said that once the notification window has closed, fund managers that have not submitted a notification for a fund will be unable to use the temporary permissions regime for this fund and will not be able to continue marketing the fund in the UK.
Details of investment funds with a temporary permission, which will continue to be marketed to UK retail investors, will be shown on the FCA's register.
If needed, the temporary regime will allow inbound firms to continue operating in the UK within the scope of their current permissions for a limited period after exit day, while seeking full UK authorisation.
It will also allow funds with a passport to continue marketing in the UK while seeking UK recognition.
As part of the temporary regime, which will only be available to firms which already passport into the UK, customers of firms with UK branches in the regime will receive protection from the Financial Services Compensation Scheme, equivalent to the cover provided to customers of UK firms.
Firms in the temporary permissions regime would be required to contribute to the cost of the FSCS.
The FCA has also said firms in the regime - regardless of whether they have a UK branch or not - will come under the jurisdiction of the Financial Ombudsman Service.
There will be a consultation on the FCA's plans for the temporary regime in the autumn.