In Focus: TaxMar 30 2021

How advisers can serve EU clients post-Brexit

  • To understand what the lack of equivalence means for serving EU-based clients.
  • To be able to explain to clients how ongoing service might continue.
  • To be able to explain what rules and regulations are in force for UK advisers.
  • To understand what the lack of equivalence means for serving EU-based clients.
  • To be able to explain to clients how ongoing service might continue.
  • To be able to explain what rules and regulations are in force for UK advisers.
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How advisers can serve EU clients post-Brexit

There are 40 areas of equivalence in the EU’s regime, but together they in no way cover the full extent of cross-border financial services traded into the EU - and there are significant gaps between what is available through passporting and the activities for which equivalence is available. 

There are also different equivalence regimes for different financial services, which means third countries’ laws will have to satisfy different criteria in order to secure equivalence for different services.

Legally, these activities cannot include services such as insurance and distribution, commercial bank lending, payment services and mortgages – activities at the core of UK financial services.

But perhaps even more important are fundamental banking activities like accepting deposits and providing investment services to retail (non-professional) investors. 

The fact these are outside of the ambit of equivalence explains why many EU-based customers have received letters from financial institutions in the UK, confirming their UK bank accounts will be closed, or why a UK investment manager can no longer manage their portfolio.

In the meantime, some EU member states are already starting to flex their regulatory muscle.

The financial regulator in France, the ACPR, has written to remind UK financial institutions they need to provide their customers with personalised information on how their service will continue – or cease – to be provided in France after January 1, 2021.

And the Dutch have backed up ESMA’s statement on reverse solicitation, confirming it is not permitted for third country financial services firms in respect of Dutch retail customers. 

Memoranda of understanding

In January 2021, the EU and UK confirmed they would try and agree by the end of March 2021 a Memorandum of Understanding, to set a framework for ‘structured regulatory cooperation’. 

The UK it seems would prefer a more bespoke, all-encompassing arrangement – a form of ‘enhanced equivalence’ sweeping across the majority of financial services.

However, it would also prefer something that allowed it flexibility in its negotiations with other nation states and the ability to diverge where it felt necessary.

The EU, which was always fearful of the UK cherry-picking the best bits in the main deal without paying the price for leaving the EU, remains wary of detracting from a strict adherence to the existing basis of equivalence.

The EU is making the equivalence regime more difficult for third countries to satisfy.

Reflecting this position, Valdis Dombrovskis, an EC executive vice-president, stated the EU’s equivalence assessment of the UK’s regulatory environment ‘will have to be forward-looking’ and would need to take into account ‘overall developments, including any divergences of UK rules from EU rules’.

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