After more than a few false starts with Brexit, we now have a date set to leave the EU of 31st January 2020. The good news is that nothing will change initially as the UK is set to enter into an Implementation Period which will last until 31st December 2020. So, what does this mean for your clients over in Europe? During this implementation period, it’s business as usual, your passports will remain intact, and can continue to be used, and EU rules will continue to apply.
The FCA has been urging firms who conduct business with the EEA to ensure they are prepared for every eventuality, including a hard Brexit, so this commitment to an implementation period provides some relief, however, once the implementation period ends, depending on the deal agreed. If passporting ceases the regulator has made it very clear that it is up to firms to decide how/if they will continue to service their clients abroad, ensuring that their decisions and actions are guided by what would be the right outcome for the clients, with the options being continuing to service the clients whilst they are abroad, or alternatively ceasing their servicing. Firms who choose the latter would need to ensure that when they sever their engagement with these clients, they do so in a way that is not detrimental to them.
So, what if you wish to continue to service them?
Many firms do not actively market or seek clients abroad, but rather inherit these when clients decide to move abroad either temporarily or permanently with work or as a lifestyle choice. If you have clients that fall into this category, then you have a couple of avenues that you can consider.
The first of which would be to seek approval from the regulator of your client’s home state. If you have multiple clients in one area, this would likely be the most appropriate option to ensure that you can continue to provide your clients with advice. However, this may come with additional requirements such as cost, having a branch in that country or specific qualifications.
The second option which is being widely considered, particularly by those who have just a few clients living abroad is Reverse Solicitation. What does Reverse Solicitation mean? In simple terms, it means where a client contacts you for specific advice when you haven’t approached or marketed to them. Article 42 of MiFID II allows for reverse solicitation, which enables clients in an ESMA country to initiate an investment service or activity from a firm in another country. Many firms are looking to rely on this regulatory exemption once we leave finally the EU, however, we do urge an element of care as reverse solicitation if used wrongly could have significant repercussions from both a regulatory and professional indemnity point of view. Due to this, the regulator is suggesting firms take legal advice which may prove to be expensive. Our recommended starting point would be to approach your PI insurers to obtain their written opinion on the viability of using this exemption, and also to contact the home state regulator in the country in which your client resides to explain the circumstances and seek their guidance, doing these actions in the first instance will only cost you a little time.
With this stay of execution following the recent general election, firms have more time to consider their options and whether they will choose to continue to service clients abroad or not, and we will likely be provided with more information over the coming months, so use this extra time wisely to make sure you provide the best outcome for your clients.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.