Aifa has warned that firms should not see passporting into the UK under a foreign regulator as an easy route to escaping retail distribution review restrictions.
In a paper today, called Advice Horizons and sponsored by Legal & General, the trade body says some foreign regulators are often not as familiar with IFA issues as many countries do not have a large intermediary presence.
Aifa warns that it can be very difficult for firms to understand and align compliance requirements when they are under the jurisdiction of two different regulators.
The paper says: “An issue often raised is the potential for advisory firms currently based in the UK to move to another EU member state and passport back into the UK.
“The rationale for this move is that they would ’escape’ the demands of the RDR.”
Aifa says firms might look to do this in order to fall beyond the complaints regime of the Financial Ombudsman Service and not have to pay Financial Services Compensation Scheme levies.
But it says: “Firms must gain authorisation in the home state of their choice – and so deal with that nation’s regulators who are, in general, less experienced in dealing with intermediary firms – given the small scale nature of the IFA community abroad.”
Aifa says that firms passporting in would be subject to any regulatory changes the home state regulator decides to impose.
It adds: “The costs of setting up in a different country, managing the ’domestic’ legislative and regulatory demands, and also of supervising staff based in the UK can be demanding.
“It is not the easy option it may be portrayed as but, as firms out-source many of their activities, it is a matter that should not be ignored – especially given the tax plans of the UK Government.”