Commentary Passporting Section 12 and Schedule 4: Passporting: exercise of EEA rights and Treaty rights
217.Section 12 introduces Schedule 4 which amends sections 34 and Schedule 3 (EEA passport rights), section 35 and Schedule 4 (Treaty rights) and Part 13 of FSMA (incoming firms: powers of intervention). Section 34 and Schedule 3 provide that EEA firms which are authorised by their home state regulator in accordance with the relevant single market directive (see paragraph 1 of Schedule 3) may establish a branch or provide services in the UK without requiring permission under Part 4A; this is known as “passporting”. Section 35 and Schedule 4 make similar provision in relation to EEA persons where there is no such right under a single market directive but the law of their home state affords equivalent protection or there is European Community law providing for coordination or harmonisation of Member States’ laws and administrative procedures in relation to the activity in question.
218.Paragraphs 2 to 8 of Schedule 4 make amendments to Schedule 3 to FSMA which relate to the exercise of passport rights by EEA firms under the single market directives (defined in paragraph 1 of Schedule 3 to FSMA).
219.Notices in relation to the exercise of passport rights to establish a branch or provide services in the UK must be given to the “appropriate UK regulator”. The United Kingdom will specify which of the PRA and FCA is the appropriate regulator in relation to each of the single market directives listed in paragraph 1, by the provision of notice to the European Commission. The PRA must pass all notices it receives in relation to the exercise of passporting rights to the FCA; the FCA must pass copies of such notices it receives to the PRA in prescribed circumstances. The circumstances to be prescribed will, for example, relate to the activities described in the order under section 22A. The FCA will supervise all incoming EEA firms; the PRA will have to supervise incoming EEA firms which are PRA-authorised persons or intend to undertake PRA-regulated activities.
220.Paragraphs 9 to 21 make amendments to Schedule 3 to FSMA which relate to the exercise of passport rights under the single market directives by UK firms.
221.Notices in relation to the exercise of passport rights must be given to the “appropriate UK regulator”. Where the authorised person is a PRA-authorised person, the appropriate regulator is the PRA. In other cases, the appropriate regulator is the FCA.
222.The amendments made by paragraph 10(3) to paragraph 19 of Schedule 3 and the amendments made by paragraph 11(3) to paragraph 20 of Schedule 3 deal with coordination between the regulators. Where the PRA is the appropriate regulator, it must consult the FCA before deciding whether to give a consent notice in connection with the exercise of passporting rights (except in relation to the establishment of a branch under the insurance mediation directive). Where the FCA is the appropriate regulator and the immediate group of the authorised person includes a PRA-authorised person, the FCA must consult the PRA. New paragraph 24A of Schedule 3, inserted by paragraph 17 makes further provision for coordination. It enables the PRA and FCA to make arrangements about how they will consult with each other when required. The arrangements may provide for one regulator to be required to obtain the consent of the other before giving a consent notice or exercising functions in relation to the ongoing supervision of such UK firms.
223.Paragraphs 22 to 26 make amendments to Schedule 4 to FSMA which relate to the exercise of Treaty rights. Notifications by incoming Treaty firms are to be made to the FCA or PRA. The PRA must give a copy of any notifications it receives to the FCA. The FCA must give a copy of notifications it receives to the PRA where the notification relates to a permitted activity which is a PRA-regulated activity, a PRA-authorised person, a person whose immediate group includes a PRA-regulated activity or in circumstances specified by the Treasury. The powers and duties in relation to Treaty firms are conferred on the PRA where the firm is a PRA-authorised person or carrying on a PRA-authorised person, and on the FCA in other cases.
224.Paragraphs 27 to 43 amend sections 34 and 35 and Part 13 of FSMA (powers of intervention). Where the incoming firm is a PRA-authorised person, both the PRA and FCA may exercise the powers of intervention. In other cases, only the FCA may exercise the powers of intervention. By virtue of section 196 of FSMA as substituted by paragraph 36, the FCA must consult the PRA before exercising its powers of intervention under Part 13 in relation to a PRA-authorised person or a member of a group which includes a PRA-authorised person. The PRA must consult the FCA before exercising its powers of intervention under Part 13 in all cases.