The Cyprus Securities and Exchange Commission (CySEC) launched its Temporary Permission Register listing all the UK firms which have been granted a Temporary Permission to provide investment services to per se professional clients and eligible counterparties, based in Cyprus up until 31st December 2021. The Temporary Permission Register can be accessed here.
CySEC announced that it has received ninety-six applications by UK firms looking to provide investment services under the Temporary Permission Regime (TPR) following Brexit. A press release on the matter was issued by CySEC on 27th April 2021.
CySEC reports that from the applications received, eighty-eight UK companies were licensed by the CySEC to utilize the TPR, 7 applications were deemed as inadmissible on the TPR eligibility criteria and 1 was withdrawn.
The TPR was established by CySEC by virtue of the CySEC Directive DI87-04(2) and the Policy Statement PS-02-2020. In fact, the TPR does not require physical presence in Cyprus for UK firms when providing investment services (including when performing investment activities) solely to professional clients per se and eligible counterparties, based in Cyprus. The TPR was designed to allow a smooth transition to new contracts post-Brexit, concluded on a reverse solicitation basis and for UK firms who wish to continue soliciting Cypriot professional clients and eligible counterparties to establish a physical presence in the Republic.
The deadline for the submission of notifications by UK firms who wish to make use of the TPR was initially set to 31st December 2020. However, due to the significant number of notifications received by CySEC, several of which were submitted after 31st December 2020, and considering the practical difficulties raised by interested parties, CySEC extended the deadline up until 28th February 2021.
According to the CySEC's announcement, interested parties are encouraged to consult the Brexit Information Hub, which aims to facilitate the seamless navigation of Brexit-related information and support the compliance of interested parties with their legal obligations.
From 1st January 2022 onwards, UK Investment Firms that provide investment services on the TPR basis and wish to continue soliciting per se professional clients or eligible counterparties in Cyprus, would be required to establish a Cyprus branch or apply for a Cyprus Investment Firm (CIF).
Cyprus Investment Firms
On a reverse solicitation basis, the TPR also enables relevant EEA firms, including CIFs, that were passporting into the UK when the transition period ended to continue operating temporarily in the UK now that the passporting regime is no longer applicable.
The previous passporting regime
Before the end of the transition period, that is before 31st December 202, CIFs could use the passporting regime to establish a branch or provide their services (without a UK branch) in the UK without being authorised by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (the "FCA"). Nevertheless, following the end of the transition period, CIFs can no longer passport into the UK under the same passporting regime.
For this reason and as part of the UK's preparations for Brexit, the UK Government established the TPR for firms based in the EEA, including CIF's, that passported into the UK.
The TPR allows EEA-based firms that were passporting into the UK at the end of the transition period to continue operating in the UK withing the scope of their previous passport permission for a limited period after the end of the transition period. This is subject to having notified the FCA that they wanted to join the TPR before the end of the transition period. During this limited period, these firms must seek full authorisation by the PRA or the FCA in the UK, if required, to continue to access the UK market. CIFs can do this for a limited period while seeking UK recognition to continue to market in the UK.
Principles for Businesses
The FCA has issued its 11 Principles for business which set out the main regulatory obligations and high-level standards that authorised firms must meet. According to the FCA Guidelines, firms in the TPR shall at all times adhere to the following principles:
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 (only applies to firms in the TPR to the extent that the firm is subject to capital requirements).
5. Market conduct – a firm must observe proper standards of market conduct.
6. Customer's interests – a firm must pay due regard to the interests of its customers and treat them fairly.
7. Communications with clients – a firm must pay due regard 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: relationships 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 when it is responsible for them.
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 includes for example, plans to grow/change their UK business, issues with the firm's financial or operational resilience or changes in group structure or ownership.
If a firm in a TPR contravenes one or more of these principles, it could face enforcement action which could result in a fine, public censure or the firm's temporary authorisation being suspended or removed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.