How advisers can serve EU clients post-Brexit

The two latter options, while sounding the best in the long term, would only have been operable by 31 December 2020 if the firm concerned had made its decision and initiated its plans long before the cut-off date.

A large number of UK financial institutions did put plans in place and restructured their UK businesses to account for these changes.

Many used pre-existing businesses on the continent to passport into other member states, perhaps utilising ‘delegation’ as means of transferring or recruiting the minimum number of staff and activities from the UK hub.

Others may have examined where their preponderance of clients were located in the EU and chose the local regulator route.

But UK financial services firms range in size enormously and all the choices were really only open to those at the bigger end of the market.

ESMA

Some of those at the smaller end may have favoured the reverse solicitation option, particularly where they had a large number of retail clients with directly held portfolios.

An increase in activity in this area forced the European Securities and Markets Authority, to issue a public statement on January 13 2021, to remind firms of the Mifid II requirements on the provision of investments services to retail or professional clients by third country firms.

ESMA pointed out they were seeing ‘some questionable practices’ around reverse solicitation, where ‘some firms appear to be trying to circumvent Mifid II requirements’.

This statement emphasised that if it was proved investment services were being provided in the EU without proper authorisation, then the service provider was at risk of administrative or criminal proceedings, and the investors themselves may have lost the protections granted to them under the relevant EU rules, including access to any investor compensation schemes.

Some EU member states are already starting to flex their regulatory muscle.

While many UK financial advisers wrote to their clients in the EU requesting they appoint new advisers, others were maybe unaware these clients had actually left the UK in the first place.

Others were maybe hoping an eventual agreement around ‘enhanced-equivalence’ could provide the salvation they needed.

And this problem may not be restricted to just smaller IFA businesses.

UK networks may not realise the businesses they are supporting and providing compliance services to may have not yet advised their EU-based clients they can no longer act for them, if those businesses themselves are unaware of their client’s movements.

Passporting