Brexit has meant many UK citizens living in the EU have seen the forced closure of their UK bank accounts, yet today Blevin Franks is warning expats in the EU that this is likely to mark just the beginning – pensions and investments could be next.
For more than 20 years, EU trade in financial services has gradually increased as Brussels developed its own single rulebook for financial services and harmonised standards of financial regulation and supervision across the bloc.
Most importantly, this allowed for so-called passporting arrangements between EU member states – whereby a company undertaking a financial activity in one EU member state can conduct the same business throughout the EU, and on the same terms.
The majority of UK investment firms are not aware of the position they are in yet and have not advised their British clients who live in the EU of their intentions.”
In some ways, the UK has been the major beneficiary of these developments, with its growth in financial services predominantly determined by this relationship, placing London at the centre of financial services in the EU.
In 2017, 43% of UK financial services exports went to the EU, generating a £44bn surplus, with estimates suggesting 67% of these emanated from a UK base.
“Passporting arrangements came to an end on the expiry of the transitional period on 31 December 2020,” said Jason Porter, director of specialist expat financial advisory firm Blevins Franks. “From then, the main fallback option for UK financial services firms operating in the EU is the ‘equivalence’ regime.
“The EU allows third-state financial firms market access if it believes that state’s regulatory regime is equivalent to, or closely aligned with, those of the EU, said Porter.
“But it seems inevitable that at some point the UK will come into conflict with the EU, while the government sees one of the fundamental benefits of leaving the EU is the ability to be able to set its own rules in all areas of business.
“Businesses thrive on certainty and this potential area of friction is compounded by the fact the EU can revoke clearance in any area of the equivalence regime with only 30 days’ notice.
“This uncertainly means some firms have chosen to set up in the EU, with asset managers and investment management firms favouring Dublin, and investment banks moving staff and assets to Frankfurt and Paris. For many though this is simply not a viable option.
“Another consideration is the regime itself. Under MiFID II, third-country investment firms located in an ‘equivalent’ jurisdiction can seek clearance to provide services on a ‘wholesale’ basis (i.e. to non-retail clients, which the EU defines as ‘eligible counterparties’ and ‘professional clients’). Wholesale would include where a UK pension scheme, SIPP or investment bond has appointed an investment manager, on behalf of scheme- or policyholders.”
The MiFID II provisions were amended in December 2019 and will apply from June 2021. The changes make the MiFID II regime far more onerous than any other EU equivalence regime.
“UK asset managers and investment management firms will have two main concerns in deciding on whether to choose the EU’s equivalence option,” said Porter. “First, maintenance of immaculate records and standards are irrelevant if the UK decides to diverge from the EU’s financial rulebook. Second, the demands of the rules – from both a time (and therefore staffing) and cost perspective may mean they are not a viable option for many UK firms.
“As a result, there is already evidence emerging of UK citizens receiving letters from their pension scheme and investment bond providers confirming they will need to find new investment managers.
“The majority of UK investment firms are not aware of the position they are in yet and have not advised their British clients who live in the EU of their intentions. Many may not get to this point until mid-2021, when the new MiFID II third-country investment firm requirements become real. This is likely to lead to another headache for UK nationals living in the EU.”