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COMP 14.1 Application and Purpose

Application

COMP 14.1.1 R

This chapter applies to the FSCS.

COMP 14.1.2 R

This chapter also applies to an incoming EEA firm which is a10MiFID investment firm4, an IMD insurance intermediary,7 a UCITS management company, an MCD mortgage credit intermediary9 or an AIFM7.21

4 3 7

Purpose

COMP 14.1.3 G

This chapter provides supplementary rules and guidance, and contains a broad summary, in guidance, of FSCS cover,10 for an incoming EEA firm which is 10 an IMD insurance intermediary, a10MiFID investment firm4,7 a10UCITS management company, an MCD mortgage credit intermediary9 or an AIFM7. It reflects in part3 the implementation of the Investor Compensation Directive10 and UCITS Directive.10

4 7 8 8 2 1
COMP 14.1.4 G
3 4 6 6
  1. (1)

    6An incoming EEA firm, which is 10 an IMD insurance intermediary, an MCD mortgage credit intermediary9 or a10MiFID investment firm is not a participant firm in relation to its passported activities unless it "tops-up" into the compensation scheme. This reflects section 213(10) of the Act (The compensation scheme) and regulation 2 of the Electing Participants Regulations (Persons not to be regarded as relevant persons). If an incoming EEA firm also carries on non-passported activities for which the compensation scheme provides cover, it will be a participant firm in relation to those activities and will be covered by the compensation scheme for those activities in the usual way.

  2. (2)

    6Whether an incoming EEA firm which is an EEA UCITS management company is a participant firm in relation to its passported activities depends on the nature of its activities. In so far as it carries on the activities of managing investments (other than collective portfolio management), advising on investments or safeguarding and administering investments, it is not a participant firm unless it "tops-up" into the compensation scheme and it may only obtain top-up cover if it carries on those activities from a branch in the United Kingdom10. To the extent that such a firm provides collective portfolio management services for a UCITS scheme from a branch in the United Kingdom or under the freedom to provide cross border services, it is a participant firm in respect of those services.

COMP 14.1.4A R

7For an incoming EEA firm which is an AIFM, the question of whether it is a participant firm for its passported activities depends on the type of activities it carries on under that passport. If it manages an authorised AIF from a branch in the UK or under the freedom to provide cross-border services, it is a participant firm for that activity. If it manages an unauthorised AIF, or provides the services in article 6(4) of AIFMD from a branch in the UK or on a cross-border services basis, it is not a participant firm for that activity; however, it may choose to obtain top-up cover for those activities if carried on from a branch in the UK.

COMP 14.1.5 G

In relation to an incoming EEA firm'spassported activities, its Home State compensation scheme must provide compensation cover in respect of business within the scope of the Investor Compensation Directive10, article 6(3)6of the UCITS Directive and article 6(4) of AIFMD7, whether that business is carried on from a UKbranch or on a cross border services basis. Insurance mediation activity10 is not within the scope of the10Investor Compensation Directive.21

7 6 6 7
COMP 14.1.6 G

If there is no cover provided by the incoming EEA firm'sHome State or the scope and/or 5level of cover is less than that provided by the compensation scheme, this chapter enables the firm to obtain cover or 'top-up' cover from the compensation scheme for its passported activities carried on from a UKbranch, up to the compensation scheme's limits (set out in COMP 10). This reflects section 214(5) of the Act (General) and regulation 3 of the Electing Participants Regulations (Persons who may elect to participate). If the firm 'tops up' and then becomes insolvent, the Home State compensation scheme will pay compensation up to the limit and scope of the Home State compensation scheme, with the FSCS paying compensation for the additional amount in accordance with the provisions in this sourcebook (COMP 12.4.1 R and COMP 12.4.4 R).2

COMP 14.2 Obtaining top-up cover

COMP 14.2.1 R

An incoming EEA firm may, by notice in writing to the FSCS, elect to receive top-up cover from the compensation scheme if it falls within one of the categories prescribed in regulation 3 of the Electing Participants Regulations (Persons who may elect to participate).

COMP 14.2.2 R

An election under COMP 14.2.1 R takes effect on the date when the FSCS notifies the incoming EEA firm that its election has been accepted.

COMP 14.2.3 G

A notice under COMP 14.2.1 R should include details confirming that the incoming EEA firm falls within a prescribed category. In summary:

  1. (1)

    6the firm must be:

    6
    1. (a)

      [deleted]9

    2. (b)

      an IMD insurance intermediary; or

    3. (c)

      a MiFID investment firm; or

    4. (d)

      a UCITS management company that carries on the activities of managing investments (other than collective portfolio management), advising on investments or safeguarding and administering investments;

    5. (e)

      an AIFM that carries on AIFM management functions for an unauthorised AIF; or7

    6. (f)

      an AIFM that provides the services in article 6(4) of AIFMD;7

    7. (g)

      an MCD mortgage credit intermediary8

    36646
  2. (2)

    the firm must have established a branch in the United Kingdom in the exercise of an EEA right; and

  3. (3)

    the scope and/or5 level of cover provided by the firm's Home State compensation scheme must be less than that provided by the compensation scheme.1

COMP 14.2.4 R

When the FSCS accepts an application, it must allocate the incoming EEAfirm to the contribution group (or groups) which seems to the FSCS to be most appropriate, taking into account the nature of the business for which the incoming EEA firm is seeking cover from the compensation scheme.

COMP 14.2.5 R

The FSCS must put in place and publish procedures to enable an appeal by an incoming EEA firm against a rejection by the FSCS of an election to receive top-up cover or a decision to allocate an incoming EEA firm, once the firm's election has been accepted, to a particular contribution group. Such procedures must satisfy the minimum requirements of procedural fairness and comply with the European Convention on Human Rights.

COMP 14.4 Ending top-up cover

FSCS terminating top-up cover

COMP 14.4.1 R

The FSCS must terminate an incoming EEA firm'stop-up cover where it has ascertained2 that the conditions in COMP 14.2.1 R are no longer satisfied.

2
COMP 14.4.2 R

If an incoming EEA firm which has top-up cover fails to observe any of the rules in this sourcebook which apply to participant firms, the FSCS must notify the FCA3 and the incoming EEA firm'sHome State regulator.

COMP 14.4.3 R

In cases where COMP 14.4.2 R applies, the FSCS must co-operate with the incoming EEA firm'sHome State regulator so that appropriate measures can be taken to ensure that the incoming EEA firm meets its obligations under this sourcebook.

COMP 14.4.4 R

[deleted]4

COMP 14.4.4A R

4If the incoming EEA firm fails to meet its obligations for a period of twelve months following the notice, the FSCS may, subject to obtaining the consent of the incoming EEA firm'sHome State regulator, terminate its top-up cover. Notwithstanding the termination of top-up cover under this rule, cover will continue for protected investment business transacted before that termination.

Resignation of an EEA firm from the compensation scheme

COMP 14.4.5 R

An incoming EEA firm which has top-up cover may terminate that top-up cover by giving six months' notice in writing to the FSCS.

Notice to customers and the FSCS1

COMP 14.4.6 R

When an incoming EEA firm's top-up cover comes to an end under COMP 14.4.1 R, COMP 14.4.4 R or COMP 14.4.5 R, it must:1

1
  1. (1)

    inform all the clients of its UKbranch no later than six weeks after the date that its participation ends that they are no longer protected (or, if appropriate, of the more limited protection provided)2 by the compensation scheme, and of the level of compensation which is then available to them; and1

  2. (2)

    within two months, notify the FSCS whether it has done so.1

COMP 14.4.7 R

If an incoming EEA firm fails to comply with COMP 14.4.6R (1)1, the FSCS must inform the firm's Home State regulator of that fact.

1
COMP 14.4.8 R

The FSCS must bring the ending of an incoming EEA firm's top-up cover to the attention of the incoming EEA firm's clients by means of a public notice.