This year has so far lived up to expectations: the political uncertainty surrounding the nature of post-Brexit equivalence shows no sign of abating.
As a result, much of the wealth industry is inert, unwilling to commit to the implementation of their Brexit contingency planning until the future of the UK’s financial services regulation becomes clearer.
Plenty of businesses will have begun indicating their plans to clients and will know the value of the potential business they stand to lose if contingency plans for a worst-case scenario are not executed once Brexit’s outcome materialises.
Although sitting tight might seem the most logical option, it does not mean wealth managers and advisers have to stick their heads in the sand and wait for the political clouds to clear.
Irrespective of the negotiations’ outcome, wealth managers will still have to evidence to the Financial Conduct Authority how they have acted and communicated through this uncertainty in the best interests of their clients.
The FCA has conceded that it will not take a strict liability approach, and that they do not intend to take enforcement measures straight away, so long as companies can evidence they have taken reasonable steps to prepare to meet their obligations by March 30.
However, this should not lull companies into a false sense of security – the priority to evidence that you have carefully considered what steps you need to take and have prepared to meet new obligations come March 30 should not be underestimated.
- While preparing for Brexit, companies should not forget their ongoing duties
- It is important to evidence steps you have taken
- Independent financial advisers should see if their clients are EU27-only
Accordingly, a separate EU27 authorisation continues to be the golden ticket to future-proofing against all post-Brexit scenarios. Without regulatory approvals in place, companies should look at the exemptions that could be available to them for those at-risk clients.
Wealth managers can also look to see if any of the EU27 states that they operate in have announced whether they intend to introduce temporary measures or transitional relief to prepare for the UK’s withdrawal.
While this approach provides a continuity of service, it is not a silver bullet.
Understanding the technical limitations to what exemptions allow a business to do will inform transparent client communications and help assess the underlying uncertainty that not all exemptions are permanent.
If there is no exemption available, the risk is obvious: companies may no longer be able to service the business and, in the event of a loss of passporting, the cessation of business with these EU27 clients is the only option.
Companies are beholden to themselves to explore these options and determine their risk appetite and whether to cut their losses.
The relationship test
A root-and-branch analysis of companies’ EU27 customers will show vulnerabilities and allow management teams to map the gaps that need to be filled.