UK Financial Advisers And EU-Resident Clients – 10 Key Questions To Ask
Are you a UK national living in an EU country such as France, Spain, Portugal, Cyprus or Malta? Or are you currently UK resident but planning to move to one of these countries in the next year or so? If the answer to either of these is yes, you should read this article from Jason Porter of Blevins Franks.
Written by Jason Porter of Blevins Franks
As part of the European single market, the UK enjoyed substantial market access in financial services to the rest of the EU through a system known as ‘passporting’.
Upon leaving the European single market on 31 December 2020, UK financial services lost passporting rights. Market access is now determined by a separate mechanism known as ‘equivalence’.
Despite a proposal to conclude equivalence assessments by June 2020, the deadline was missed, with the EU and UK blaming each other. In November 2020 the UK Chancellor announced the publication of the UK’s own equivalence assessments. But, with two temporary exceptions in relation to clearing houses for derivative transactions and recognition of the UK’s Central Securities Depository, the EU has so far refused to publish its own equivalence decisions and has indicated they are in no rush to do so.
Consequently, without an equivalence regime for financial advisory services, UK financial advisers are no longer authorised to give advice within the EU. We are increasingly approached by prospective clients whose UK financial adviser has had to concede that, post Brexit, they can no longer appropriately advise nor service their EU resident clients.
Besides these considerations, as has always been the case, a UK adviser registered with the Financial Conduct Authority (FCA) and passported into Europe is not necessarily an expert on the tax and regulatory requirements of that EU country, especially if they are not based there themselves.
The giving of advice is a regulated activity that requires the registration and authorisation of an advisory firm locally in the UK/EU market in which they are operating. This can be achieved now by exercising of passporting permissions issued by another EU (non-UK) Member State or by establishment of a locally regulated branch.
If you are putting planning in place today using a UK adviser, for your own peace of mind, ask them to answer the following questions in writing.
- Now that passporting rights have fallen away for UK-regulated advisers, what authorisations does the UK adviser have from the regulator of an EU Member State to enable them to continue to legitimately advise and service EU-resident clients?
In the context of ‘treating customers fairly’ (an FCA requirement), advisers must be transparent in how they can continue to advise EU-resident clients now that passporting rights have fallen away. As a client, you could ask to speak to the company’s compliance department to understand how the company is structured and authorised to advise EU resident clients post-Brexit and to obtain reassurance that they have the necessary regulatory permissions to do so.
The FCA expects UK advisers to be clear with clients on how their services and your consumer rights will have changed as a result of Brexit. (see link at the bottom of page)
- If the UK adviser has lost the necessary regulatory permissions to advise clients outside of the UK, how will advice be delivered going forward?
You need to be aware if you will be required to travel back to the UK for meetings and to sign documentation. If so, consider how practical that would be in situations where you need funds quickly or if you are ill and unable to travel.
Simply taking advice by email or telephone call rather than face to face does not negate the need for the UK adviser to be authorised in the EU when providing advice to EU residents. The European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA) are aware that some EU and UK firms in the EU and the UK have been seeking workarounds to in-country authorisation and have issued documents in this regard. (see links at the bottom).
- Will the adviser confirm in writing/by email that their professional indemnity insurance will cover them in the event of poor advice?
Beware that a reluctance to provide this assurance in writing may signal that all may not be as it seems.
- Can your adviser give you the phone number of their Compliance Officer to confirm their status in relation to advising EU clients?
They should not hesitate to provide contact information. You can telephone the FCA to discuss the situation at their contact centre on 0800 111 6768 (freephone), 0300 500 8082 from the UK, +44 207 066 1000 from abroad, or email email@example.com.
You should also ask to see proof that the UK adviser has permissions to operate in the EU. Ask for the contact details of the relevant EU regulator and also links to the relevant EU regulator website.
- Will the product providers used by the adviser for clients in Europe allow the adviser to intermediate if they do not have the necessary permissions?
Our understanding is that some providers will not force the client to change their adviser but will prevent the adviser from intermediating on new transactions such as top-ups and change of investments. This will limit the planning opportunities using the existing arrangements.
In France, for example, the Banking and Insurance regulator Autorité de Contrôle Prudentiel et de Résolution (ACPR) have made it clear that:
“In the absence of authorisation issued by the ACPR or an incoming passport from another member state of the European Economic Area, the continuation of any new activity in France from this date would place you in a situation of illegal exercise and expose you to criminal prosecution.”
As a result, no insurance company or bank operating in France is likely to accept business from UK advisers not authorised in France. This therefore limits the planning options available to you. We expect similar positions to be taken by other EU regulators seeking to protect the consumer in their markets. The Central Bank of Ireland, for instance, decided to provide a temporary insurance run-off regime for three years on existing insurance contracts, but entities that apply for this regime cannot distribute any new insurance contracts or even renew any insurance contracts.
In their public statement on 13/1/2021 ESMA state:
“The provision of investment services in the EU without proper authorisation in accordance with the EU and the national law applicable in Member States exposes service providers to the risk of administrative or criminal proceedings.” It also explains that when using the services of unauthorised investment service providers, “investors may lose protections granted to them under EU relevant rules”.
We are aware of some UK platforms/providers who will no longer accept instructions direct from existing EU resident clients preventing them from rebalancing portfolios, or will not accept additional funds to be added to an existing contract in the name of an EU resident client, e.g. into their SIPP.
- Before moving from the UK, what financial and tax planning steps do I need to take (and when) and what should I not do until I have moved?
In many countries, getting the timing correct is crucial to secure the most tax-efficient arrangements – especially as the financial year in Europe runs from 1 January rather than 6 April as in the UK. It is therefore essential that you get the right planning advice before becoming tax resident in Europe.
- What are the cost implications of revisiting UK-based advice and how will the adviser provide that advice?
Implementing advice that is effective in the UK but is ineffective for living in Europe will result no doubt in increased costs for you as a client, as both advisers (in the UK and Europe) will seek recompense for their services, whether by invoicing or initial product fees.
- If a client is EU-based and complains about advice provided by a UK regulated entity post Brexit (that is not set up to provide advice in the EU), how would the FOS/FCA review this advice?
At the start of any business relationship the adviser must provide the client with Terms of Business which outline the complaints handling process and escalation to the relevant Ombudsman, e.g. the Financial Ombudsman Service (FOS) in the UK.
If a relation started pre-Brexit and the complaint relates to the original advice, there is a chance that FOS would entertain the complaint. However, if the matter being disputed took place post-Brexit and the adviser is not set-up in the EU, then FOS will unlikely entertain the complaint and the client will not have the FOS equivalent in the EU Member State he resides in as an alternative.
The regulatory authorities, e.g. the FCA in the UK, will never entertain a customer complaint. They may, however, review the receipt of such a complaint and take enforcement action alongside the corresponding EU Member State regulator, against the UK adviser.
- What local knowledge does the UK adviser have of the EU country I live in (or plan to move to) on residence, domicile, wealth tax, succession law, succession tax, capital gains tax and income tax?
- What are the key aspects of the Double Taxation Treaties between the UK and the country I live in/plan to live in, in relation to the above and how are they affected by the UK leaving the EU?
FCA – http://www.fca.org.uk/consumers/how-brexit-could-affect-you
ESMA – www.esma.europa.eu/press-news/esma-news/esma-reminds-firms-mifid-ii-rules-reverse-solicitation
EIOPA – www.eiopa.europa.eu/content/brexit-consumer-guide-practical-information-consumers-life-insurance-policy-or-pension-uk