Member News

BBG member Jason Porter explains.

UK nationals who resided in the EU prior to 31 December 2020 had their position protected under the Withdrawal Agreement, and those that arrive thereafter are covered by the general ‘third state’ rules the EU has in place.

And while the Trade and Cooperation Act agreed by the EU and the UK on 24 December 2020 does cover many scenarios around trading in goods, there are no such guarantees in respect of services and particularly, financial services.  The UK offered EU firms a short-term solution in the form of the Temporary Permissions Regime, but nothing similar was forthcoming from the EU.

As a result, all passporting rights were lost when the UK left the European single market on 31 December 2020. In September 2016 there were about 5,500 UK-authorised firms passporting their authorisations into Europe, and every one of them had a decision to make.

The expectation was this decision would not be quite so stark, as both parties hoped to have an equivalence framework in place by the end of the transitional period that allowed them to declare the UK’s regulatory and supervisory regime as equivalent to that of the EU. But, as the main deals negotiations became more fraught and protracted, financial services fell by the wayside.

This should then have made the decision simple - these UK firms either need to stop operating in the countries they passported into previously and give up their clients located there or obtain separate authorisation in each of these states via a subsidiary or branch, or passport in from another EU member state.

While many UK financial advisers have written to their clients in the EU requesting they appoint new advisers, others are either unaware these clients actually left the UK in the first place, or are hoping a swift ‘equivalence’ agreement will provide the salvation they need.

The problem may not be restricted to just smaller IFA businesses - UK networks may not realise the businesses they are supporting are providing compliance and advice services to clients living in the EU, if the businesses themselves have not kept up to date with their clients’ movements.

There are 40 areas of equivalence in the EU’s regime, but these in no way covers the full extent of cross-border financial services traded into the EU - and there are significant gaps between the overall passporting picture and the activities for which equivalence is available.

These do not include core banking activities like accepting deposits or providing investment services to retail (non-professional) investors – the reason why many UK nationals living in the EU have received letters from financial institutions in the UK, confirming these services have been withdrawn.

Some EU members states are already starting to flex their regulatory muscle; the financial regulator in France, the ACPR, has written to remind UK financial institutions they need to provide their customers with personalised information on how their service will continue – or cease – to be provided in France.

Continuing to advise EU based clients could also have Professional Indemnity Insurance (PII) implication for both the UK firm, where they retained EU based clients, even if by accident. Whilst the FCA requires that all UK regulated firms maintain PII, the demise of passporting and the fact they are no longer authorised to provide advice in the member state in which a client resides could mean an exclusion in the PII contract comes into play, should a claim arise as a result of that client.

And even if equivalence negotiations deliver an agreement sooner rather than later, one of the UK’s main aims in leaving the EU is the ability to diverge from the EU’s financial rulebook. In many areas of the EU’s equivalence regime they have the ability to withdraw approval at very short notice – at only 30-days.

Andrew Bailey, the new Head of the Bank of England and former CEO of the FCA, recently stated that the UK should not become an EU ‘rule-taker’, whilst the EU’s financial services chief, Mairead McGuinness responded that “there cannot be equivalence and wide divergence” in financial regulation.

UK financial advisers who have not already obtained authorisation to advise should be immediately writing to their clients in the EU to confirm they can no longer act for them.

Please refer to www.retiringtoeurope.com and www.blevinsfranks.com for the latest on how Brexit affects Britons in Europe.

Jason Porter is a Director of specialist expat financial advisers Blevins Franks, which has been rated Best Overall Adviser Firm in the ‘International Adviser’ magazine best practice awards. Jason is the co-author of the book ‘Retiring to Europe’.