UK wealth managers will need to join forces if EU passporting rights are lost

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UK wealth managers will need to join forces if EU passporting rights are lost

Firms are now second-guessing the impact of Brexit on their ability to conduct business on a global level, and how it will affect London’s reputation as a leader in financial services. For many firms, this is directly linked to the changes that can be expected in the UK’s regulatory framework.

Firms are now second-guessing the impact of Brexit on their ability to conduct business on a global level, and how it will affect London’s reputation as a leader in financial services. For many firms, this is directly linked to the changes that can be expected in the UK’s regulatory framework.

The FCA has taken a strong stance and clearly stated that firms must prioritise compliance. In a statement published earlier this year, the FCA said firms must continue to abide by their obligations under UK law, including those derived from EU law, and continue with the implementation plans for legislation that is still to come into effect.

Don’t confuse your need to carry out this business with a need for passporting

However, the negotiations that will follow the triggering of Article 50 are likely to change this and may leave many firms speculating about how this will affect their ability to conduct business, as well as the steps that they can take to influence these crucial negotiations.

Passporting – the right of free passage for products and services into Europe – lies at the heart of this issue. Official data revealed in September by the FCA highlighted serious concerns in this area.

The findings showed that UK-based companies currently hold 336,421 passports to operate abroad under EU directives, outweighing the 23,532 passports issued in other member states to operate in the UK. Without passporting rights, a firm’s ability to conduct business in Europe could be impacted.

It is crucial that wealth firms understand who their clients are and where they are based. The loss of passporting rights could have a serious impact on businesses’ ability to distribute products and services throughout the EU, and, therefore, significantly affect the relationship many wealth managers have with their international client base.

Your firm may need to serve a UK investor who is now a tax resident in Spain. Passporting currently permits you to do this, but don’t confuse your need to carry out this business with a need for passporting. 

As communication with the regulator and government authorities will be critical during the negotiations, firms need to ensure they have the key information at their fingertips that will allow them to convey what they do, the value of their services and what they need to conduct business.

Some of the questions they may want to consider are:

  • Does this affect the firm’s ability to employ the best? 
  • How many staff are employed in the UK, EU and elsewhere?  What nationality are they?
  • What is the firm’s value (tax contribution) to the UK and EU authorities?
  • Does this affect your ability to offer the firm’s services?  
  • Where do the firm’s clients reside? The UK, EU or elsewhere? 

Wealth firms are vying for the ear of the FCA to discuss the issues that Brexit represents for their business and what they want from new regulatory standards. 

To be heard, the wealth industry must, therefore, join forces and communicate a consistent message with clear requirements. Working with other firms and engaging with industry bodies and Brexit working groups such as the Tisa Brexit Programme, which has been commissioned by HM Treasury, or the Wealth Management Association, will provide authorities with the insights they need to make informed decisions during the Brexit negotiations.

Looking beyond the implications of leaving the EU, the UK has the opportunity to strengthen its global connections and become an even greater financial player internationally. Historically, the UK has been supported by its international links and is increasingly involved in global regulation. The Foreign Account Tax Compliance Act and the Common Reporting Standard are recent examples of this trend for global regulation.

While access to European markets is important to the UK wealth sector, the bigger picture shows that financial globalisation is set to continue, and opportunities for worldwide business will still remain despite the outcome of any new post-Brexit trade agreements.

For UK firms to act as global players they must continue to set the standards while leading the way in wealth management. Ultimately, if innovation and quality service is put at the forefront, this could be the time for wealth mangers to shine, but failure to provide their clients with clear advice could risk the UK’s reputation as a global leader in financial services.

Andrew Watson is FIGARO product manager at JHC