FCA update on CASS - EU withdrawal and the temporary permissions regime

Further to our blog in July 2019 CASS 14: Is it too early to start talking about withdrawal from the EU again?, the FCA issued an update on temporary permissions for inbound passporting EEA firms and funds in July this year. This is vital information for EEA firms that currently passport in to the UK or managers of EEA domiciled UCITS and AIFs that market these funds in the UK. The FCA will open a window for firms to update them on their plans in September 2020.

Key points from the FCA-update  

The Temporary Permissions Regime (TPR) will now take effect at the end of the transition period, (expected to be 31st December 2020) 

• The window for firms and fund managers to notify the FCA that they want to use the TPR is currently closed. Firms and fund managers that have already submitted a notification need take no further action at this stage. 

• The FCA will re-open the notification window on 30th September 2020. This will allow firms and fund managers that have not yet notified the FCA to do so before the end of the transition period. There will also be an opportunity for fund managers to update their previously submitted notifications, if necessary. 

• The FCA will communicate further on this in September 2020. 

The FCA update is available in full text here. 

What is the temporary permissions-regime for CASS? 

Previously, client asset protection was regulated by the ‘home state’ for incoming EEA firms. However, after the UK’s withdrawal from the EU, these firms will now need to comply with specific new rules in the CASS sourcebook. 

There will be a new chapter of CASS (CASS 14) that sets out the rules the FCA will apply to TP firms that receive or hold client assets in respect to their UK business. Some of the areas covered are: 

• Requirement for TP firms to provide additional reporting (TPCAR) to the FCA (monthly for large and medium-sized firms),  

• ‘TP Firm CASS disclosure’ to clients, these are details required to be provided to clients on or before 1st January 2020, 

• Need to provide an English translation of the ‘home state’ client assets audit report,  

• Disclosure of client assets treatment on insolvency (this includes guidance on font size and seeking legal opinions), and 

• Rules on appointed representatives and MiFID-tied agents to TP firms. 

What do I need to do? 

If your firm is impacted, you will need to take the following steps:  

• Notify the FCA that you will be impacted, if you have not done so already, when the window opens again in September, 

• If you have already notified the FCA, but things have changed since, update the FCA when the window opens again in September, and 

• Implement your CASS 14 operating model to meet the deadline of 1st January 2021 

Given the well-documented challenges faced by firms in complying with the FCA’s CASS rules to date, there are best practice learnings to be applied by TP firms looking to implement what is effectively a new CASS operating model.   

Whilst these changes will of course increase the risk of non-compliance for TP firms, there is a real opportunity to review existing processes, risks and controls and seek to get things right from day one. During this process, firms may also identify opportunities for automation, leading to the removal of manual controls and a reduction in operational risk. 

Baringa has supported some of the UK’s leading financial services firms in applying the CASS rules. If you would like to talk to us about our experience please email cass@baringa.com.