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Linda Smith: Advising cross border within the EU

If you advise clients who live in another EU state – even part of the time – you may require one or more cross-border advice passports


In the coming years, we are likely to see the debate about the UK’s place in the European Union intensify. With much of our current regulation being European in origin, Apfa was interested to understand what effect this might have on adviser businesses.  So we conducted some research through NMG Consulting’s Financial Adviser Census in a bid to better understand how widespread the impact is for firms with clients based outside the UK, a number which could have substantially increased if the Scottish had voted Yes last week.

Whilst 65 per cent of respondents confirmed they do not have any clients living in the EU, a fair number, 33 per cent, have clients that either reside permanently in another European state or split their time between homes in the UK and the EU. What was more interesting was that only 25 per cent of those advisers with clients that spend time living in the EU – be it temporary or permanent – held passports to advise cross border. It appears the vast majority of advisers take the opportunity to give advice to these clients only when the clients return to the UK. We were curious to know if this was an example of regulation restricting access to advice for those living overseas.   

Before deciding if a passport is required firms should consider how they are delivering advice to clients in the EU. The FCA generally considers the important factor is where the advice is given, but other member states think where the advice is received is more relevant. Therefore where clients are only given advice when they are in the UK, passports for the activities are not required. Of course, advice can be delivered through various channels and if technology is used to facilitate remote meetings and communications it becomes an issue, even if the firm never visits the client nor has any physical presence in the country.   

If advising when the client is not in the UK, firms potentially need to hold both passports, particularly those wanting to retain their independence.   The application for an Insurance Mediation Directive passport to give advice on insurance-based products simply requires a notification to the FCA of the intention to conduct business in the EU. It is not so easy for those wanting to give advice on Mifid investments. Most UK advisers are Article 3 exempt Mifid firms.  The UK took advantage of the exemption when Mifid was implemented on the grounds that its requirements were disproportionate to the level of activity of UK advisers.  Most other EU states chose not to adopt the exemption.  

A Mifid passport is only available to full Mifid firms so those with an Article 3 exemption who intend to operate cross border would first need to apply for a variation of permission, which costs £250. Once this is processed a notification of the intention to undertake Mifid business in the EU needs to be made to the FCA through the Online Notifications and Application system. When making the notification options are given as to which member states advice will be given – it is unlikely that firms will have clients in all member states and blanket notifications to cover all are not encouraged.

Firms need to weigh up the benefits and disadvantages of holding a Mifid Passport.  There are additional regulatory requirements placed on Mifid firms but the potential opportunities that present themselves with overseas clients may outweigh these.  For those who decide not to opt in to Mifid the choice is to continue to service these clients when they are in the UK or to stop advising them and refer them to a firm with the necessary permission and passporting rights. Firms operating in other member states without the relevant passports run the risk of being challenged by those states for operating illegally.    

Linda Smith is senior technical adviser at Apfa



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There is one comment at the moment, we would love to hear your opinion too.

  1. good day for golf 2nd October 2014 at 8:58 am

    wish i didn’t have to deal with uk regulation but an old pension is left there
    uk company attitude is wary about anyone or thing south of Dover
    as a reminder i am just off to the dr. to have more useless kyc docs signed
    like to send the bill for all this to the jerk in acacia avenue who dreamt all this paperwork up
    its all a waste of consumer time especially since i know the US provider who actually does all the work has its own background checks and doesn’t pay any attention to the docs. I will be sending
    a real money launderer would laugh at these checks anyway- its the average joe who has to trudge around getting signatures- oh well

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