Your IndustryNov 25 2014

Advising across Europe is easier than you think

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Contrary to some of the scare stories that have done the rounds relating to European bureaucracy, regulators, trade bodies and financial advisers generally report few difficulties maintaining business with clients retiring to other parts of Europe.

Mifid permissions

While many were worried about the impact of the Markets in Financial Instruments Directive, which has been burdensome in terms of the reporting requirements for asset managers, there are a few exemptions for adviser firms.

Adviser firms may be exempt under article 3 of Mifid if it does not hold clients’ funds or securities, and if it does not provide any investment service other than ‘reception and transmission of orders’ or investment advice in relation to transferable securities and collective investments.

But it is this exemption that would prevent a firm ‘passporting’ to offer investment or pensions advice or arrange policies on the continent. Such permissions are afforded under the collective European directive under which the activity falls - in the case of retail investment advice, Mifid.

Should an exempt firm wish to passport under Mifid, it would be required to apply for a variation of permission.

The Financial Conduct Authority’s stance is that whether or not a firm needs to exercise passport rights before carrying on a particular activity in another European state depends on the type of activity itself, and crucially where it officially occurs.

‘Arranging’ and ‘advising’ are usually considered to take place in the location where the arranging/advising occurs; ‘dealing’ is generally considered to take place where the acceptance takes place, which in turn depends on the method of communication used.

Adviser experiences

Linda Smith, senior technical analyst at the Association of Professional Financial Advisers, said that while the majority of advisers do have passports for Europe, of those that have applied, few have reported any problems.

Ms Smith confirmed, however, that there can be additional reporting requirements - and even enhancement capital adequacy requirements if the firm is not exempt from the Capital Adequacy Directive. Charges apply in some cases but not others and can vary significantly.

“People began by blanket applying to lots of European countries, which wasn’t a good idea, as they received lots of correspondence back in languages they didn’t understand. We suggest being selective.

“Some countries do charge, but we’ve had no negative feedback, so it doesn’t appear to be too onerous. When the changes first came in back in the early 2000s people didn’t know what to do, but now things have calmed down.”

The longest a UK investment firm will have to wait until it can commence business in a branch based in Germany is two months

Leslie Sharpe, managing director at Clairville York Financial Services, explained that in applying for passports into France, Italy, Spain, Germany and Poland, his firm opted to passport under Mifid using a variation of permission and received a capital adequacy exemption.

Under the FCA’s Gabriel reporting rules, the firm is required to submit quarterly and annual reports on these activities.

He added: “You have to take into account local tax issues but aside from that it’s not all that bad, although it’s certainly not intuitive. You write to the jurisdiction, some will just send back a confirmation, others will ask questions about you being an investment company. Others may try to charge you.”

According to Mr Sharpe, most professional indemnity insurance will also cover this advice “as long as the advice is given within the UK and in line with FCA regulations”.

Phil Billingham, compliance and operations director at Perceptive Planning, said in his experience it was not at all simple and that in particular “some PI insurers are less comfortable with it than others”.

He said: “I couldn’t manage to get a hold of costs, countries are entitled to charge you because you’re effectively operating within their borders, but I couldn’t get any official, central source of what charges might be.

“It’s also important to note that passporting can change your Mifid reporting frequency and capital adequacy requirements.”

In terms of practical considerations, Mr Billingham advised that firms would need to know about the tax implications inherent in other countries, “so I would suggest sharing fees with a local adviser and getting it done right”.

Chris Boylan, owner of Chislehurst-based Chris Boylan IFA, agreed that it is best for clients to get local advice on any investments made within other countries that will incur local taxes.

He maintains contact with clients retiring in France, Spain, Italy and Greece, but only gives advice from a UK perspective and via a UK bank account, which he said had ensured his firm had no PI issues.

Regulators’ views

A spokeswoman for the German financial supervisory authority BaFin told FTAdviser that the process is quite easy, as most of it will be handled by the home authority. “Germany does not levy any charges but I am not aware if any other member states do,” she added.

The German authorities confirmed that for FCA-registered firms wishing to remain UK-based but providing investment services in another EU member state, the notification process with foreign regulators should take no more than a month.

If a firm wants to establish a branch in a different EU member state the process is similar, but additional information must be provided to the home country authority, taking slightly longer. Again, no charges are levied, though “the FCA will charge in this case for handling the process”.

“In conclusion, the longest a UK investment firm will have to wait until it can commence business in a branch based in Germany is two months after the FCA has sent the notification to BaFin.”

Stéfanie Duschenes, director of communication at French regulator Autorité des Marchés Financiers, also confirmed firms may conduct their activities in France without charges for doing so, and under the freedom of establishment they are also free to set up branches.

Charges are applied when setting up branches “because the AMF supervises compliance of branches established in France with the legislation and regulations applicable to them”.

The fees of supervision by the AMF are linked to the number of services passported in France. The fee amount is €3,000 (£2,397) per Mifid service per year.

Imre de Roo, spokesman for Dutch regulator Autoriteit Financiële Markten, stated that they do not charge anything for a European passport for a financial adviser from another European country.

“We do not supervise these entities since they are supervised by the supervisor in their home country, so called ‘home control’.”

peter.walker@ft.com