The UK’s financial regulator has banned four EU-based companies from selling into the country and warned it would crack down on anyone else using a temporary fix created after Brexit to dodge oversight from London.
The Financial Conduct Authority said on Monday it had withdrawn the “temporary permissions” of three small EU-based asset managers and one digital insurer after the companies ignored mandatory requests for information about their businesses.
It means that the companies — Cyprus-based Arumpro Capital and Evest, Spain’s Esfera Capital and Germany’s Inzmo Europe — would be guilty of a criminal offence if they continued to do business in the UK.
The quartet were among the 1,000 or so firms using a temporary regime that allows EU-based financial services businesses to continue selling directly to the UK without needing to be immediately authorised by the FCA.
The regime was designed partly to preserve a critical mass of activity in the City by making it easier for international companies to continue selling into the UK, as London battles to retain its crown as Europe’s financial centre after Brexit.
“The UK is open for business, but not to firms who do not meet our regulatory expectations,” said Emily Shepperd, executive director of authorisations at the FCA. “We expect firms operating under the (temporary) regime to be responsive to our requests for information, and that are coherent in their business planning.”
She added that the FCA would “continue to act against firms that fail to meet our standards”. A person familiar with the FCA policy said the regulator was adopting a “stronger approach” with businesses that were sitting in the temporary regime and shying away from efforts to apply for permanent authorisation.
The temporary permissions regime is open to firms regulated solely by the FCA and not to the banks, asset managers, building societies, unions, insurers and major investment firms are overseen jointly by the FCA and Bank of England. It included 1,065 entities at the end of last year.
Tim Dolan, partner at law firm Reed Smith, said the FCA’s clampdown “won’t just affect tiny errant firms”. The FCA was “demonstrating that they are expecting all European firms, no matter how big, that wish to continue operating in the UK to have real substance and to co-operate with them”, he added.
In a statement, the FCA stressed that it expected the temporary permissions regime to be used by “firms who want to operate in the UK in the long-term and meet the standards to do so”.
Companies can be excluded from the regime if they miss their allocated slot to submit an application for permanent authorisation, if they ignore mandatory requests for information about their businesses, if they do not intend to apply for permanent authorisation, or if their application for permanent authorisation is refused.
“This is going to catch out the disorganised as well as the dishonest,” said Ash Saluja, head of financial services at law firm CMS.
But he added that while the FCA had been “quick to clamp down on EU firms that have not met their expectations when applying for full authorisation . . . it has been noticeably slower in enabling UK firms to do business by processing their applications for authorisation and variations of permission”.
Finance executives have complained about delays in processing applications in recent months, as the FCA struggles with staff shortages and the burden of its post-Brexit demands.
Inzmo Europe co-founder and co-CEO Meeri Rebane said her firm changed its mind about entering the UK market after applying for its temporary permission and thought it did not need to engage further with the FCA.
“We acknowledge that we might have misunderstood the requirements of the FCA in relation to actively withdrawing the permission and that we have thus fallen short in terms of our communications with the FCA which was absolutely not our intention,” she added.
Esfera Capital and Arumpro Capital did not immediately respond to a request for comment. Evest could not be reached for comment.
