Picture the scene. Mrs Smith, a longstanding client, has just announced she’s moving to Japan.
What do you do? Wish her well and wave sayonara, or continue to manage her investments?
I’m sure most of you will be wondering why on earth you would give up a successful relationship – but have you considered the implications of acting for someone residing outside the UK?
Advising in Europe
Since we left the EU, the ability for UK-based firms to advise clients who live in other countries has essentially been removed.
However, if your client is an EEA/EU resident, there are a couple of exemptions you may be able to utilise to continue to act on their behalf:
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UK soil exemption: Your client may live abroad but if your advice and the regulated activity takes place exclusively during visits to the UK, the exemption is permitted. You need to keep clear records of the client’s location during any contact, as even an email or phone call made while the client was outside the UK could be considered cross-border activity.
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Reverse solicitation: A less common and, in some cases, riskier option is to cite reverse solicitation, which, when used correctly, it is valid under EU and UK law. British firms have every right to provide services to EU clients that act exclusively on their own initiative to seek financial advice. However, this exemption has limitations and seeking legal advice is recommended before proceeding on this basis.
An option for clients moving overseas temporarily is to consider giving a trusted person living in the UK power of attorney. The donor decides who to appoint and when it can be used – for example, only for the provision of financial management when they are living or working overseas.
The regulatory position
While the FCA may regulate the product you want to provide the client, if they live outside the UK, they are not within its jurisdiction in relation to your advice.
Therefore, you need to consider if the service can be justified, in terms of the cost to your firm and the client, and the effort required to comply with local legislation.
The problem is that the ‘characteristic performance’ of the service determines where the activity is seen to be undertaken. For discretionary investment management firms, it is slightly easier, as decisions are made by you in the UK, but advisers act on the instructions of the client and, for regulatory purposes, these activities are determined by the client’s location at the time the advice is given.
As a general rule, you cannot market or solicit for business outside the UK unless:
- You have written evidence of exemption from the host state
- You have been granted the relevant local authorisation
Practical considerations
You may be thinking the need to gain overseas authorisations is a mere technicality, but are you prepared to take the risk? Would you have PI cover if a complaint from an expat was to arise?
Although the chances of being caught may be low for one-off or irregular work, the FCA would hold a dim view of firms knowingly operating overseas in breach of local regulations.
There are other aspects to consider, too. For example, if you are providing an ongoing service, can you meet your Consumer Duty obligations? What would happen if you needed to make an urgent change and the client couldn’t come back to Britain? You really need to consider the outcomes for non-UK clients and whether they will receive fair value when judged against your wider target market.
Do your research
If you find yourself in the unenviable position of having to decide whether to continue acting for an emigrating client, it might be worth seeking the opinion of a solicitor or the financial regulator in the country concerned.
They will be able to confirm if there are local exemptions or if authorisation is needed. You also have to track down providers willing to facilitate an investment for clients without a UK base.
If you determine advice has been provided outside the UK, without the local regulatory permissions, you may need to consider making a declaration to the FCA. You may also need to check if your PI insurer will cover the transaction.
For precise details about serving clients overseas, it is always worth consulting the FCA’s handbook or seeking legal advice.
Vicky Pearce is a director at B-Compliant
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