Saturday, January 15 should have been an historic day in the development of financial advice across Europe. It was the official deadline for the implementation of the Insurance Mediation Directive.The dry sounding name should not deter IFAs from exploring the opportunities it could present. The IMD is intended to introduce basic consumer protection across the EU by implementing minimum standards including the level of knowledge and ability of IFAs, amount of professional indemnity cover, adequate capital requirements and no criminal record for property or financial activities. It also presents an opportunity for IFAs to expand their businesses. In theory, it gives IFAs a passport to sell their services in any other EU country. Valerie Mariatte, research manager at Clerical Medical in Luxemburg, says: “Intermediaries will be able to passport from one jurisdiction to another by way of a simple notification, provided they abide by local general good requirements. In some jurisdictions, this is likely to result in a surge of business, such as UK intermediaries passporting into southern Europe with UK-style products from cross-border insurers to target expatriates living there.” Skandia international marketing manager Shelley Robertson says IFAs cannot simply jump on a plane and fly to Spain to write business but she adds that the process is not complicated. She says the IFA should inform the FSA of his or her intention to provide services in Spain. The FSA must then notify the Spanish regulator within one month, including confirmation that the IFA has the necessary authorisation in the UK. “Having done that, the intermediary is then free to conduct insurance business in Spain one month after being informed that the FSA has notified the Spanish regulator. The directive says the one-month delay will not apply if the host country’s authority indicates it does not wish to be advised but this is considered to be unlikely,” she says. Robertson says the host country will advise the IFA of the general good requirements with which they have to comply. She says: “In the main, general good is all to do with consumer protection and therefore disclosure of the intermediary’s status and pre-contract information about the proposed policy. For example, the local law might require disclosure of charges on compulsory assumptions of growth rates and benefits.” A market such as Spain offers significant potential to FSA-regulated advisers. It is estimated that there are 54,000 British pensioners living in Spain. UK-based IFAs who passport into Spain have the advantage of saying they are regulated by the FSA. This is important in a market where there have been a number of high-profile allegations of misselling against British expatriate IFAs with local authorisation. However, there are disagreements over how easy it is to passport IFA services in reality. European Federation of Financial Advisers and Financial Intermediaries general secretary Vincent Derudder says it is too early to say how smoothly the passporting of services will be but he points out that only seven or eight countries had implemented the legislation by the January 15 deadline. “The other countries have ignored it and the European Commission will have to take action against them. In theory, it should be straightforward for an IFA to notify his home regulator that he will be offering advice in another country but there are concerns that some member states will make it difficult through the use of the so-called general good requirements to allow foreign advisers to passport into their country,” says Derudder. Iain Nicholson, director of Luxemburg-based VFS Europe, says it has offices and licences to operate in Luxemburg, the Netherlands, Belgium and Spain. But he says the situation may not be so straightforward for IFAs who want to provide notification for offering advice in another country. “We spoke to one regulator who said it was OK for UK-based IFAs to advise their own clients who had moved to its country. But if the IFAs wanted to advise new clients, they would need a local licence. They would also have to meet the local minimum qualifications. This is despite the fact that the idea of the IMD is that advisers can passport their services. We have established physical presences and therefore have obtained local licences.” But Steve Travis, head of international personal financial planning at WT Fry, says the IMD has already made it easier to offer advice across Europe. “As a result of the IMD, there are dedicated people at the FSA to deal with notification from IFAs that they want to offer advice in other European countries. They understand what we are trying to do and know their counterparts at other regulators to contact. We do not need to establish a physical presence in other EU countries to offer advice.” The biggest difficulty in offering cross-border advice, says Travis, is in working out the different tax treatments of products across Europe. “The IMD has highlighted the fact that there is no consistency in the treatment of products. In France and Spain, for example, there is effectively a two-tier system because they distinguish between domestic and cross-border bonds. To be classified as a domestic bond, insurers need to appoint a local fiscal representative. The advantage is that it reduces the amount of tax levied on the product,” he says. The more onerous disclosure requirements of the IMD will make it harder for advisers to justify the sale of unauthorised insurance products in the EU. For example, Isle of Man insurance bonds are not authorised in continental Europe. Bryan Taylor-Walker, managing director of Brussels-based Advies Associates, says: “If advisers are independent, they will have to demonstrate that they have chosen the most appropriate product for their clients and explain why it has been selected. It will be difficult – if not impossible – to argue that a product is the most appropriate if it is not authorised.” The IMD offers UK IFAs the chance to expand across Europe but it is important for them to check the tax status and level of authorisation of financial products while ensuring that they have followed the correct procedures with all regulators.
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