Brexit and the end of passporting will mean UK financial advisers with clients in Europe will not be covered by their professional indemnity insurance, specialists have warned.
The end of passporting between the UK and the European Economic Area came into effect in January this year when the Brexit transition period ended.
This means unless advisers take action to understand the various rules and regulations of different jurisdictions, they will not be able to serve their clients in Europe.
Blevins Franks has warned that PII will not cover business transacted in the Eurozone, presenting potential problems for the 5,500 UK-authorised firms who, in 2016, were passporting their authorisations into Europe.
Jason Porter, director at Blevins Franks, said: “Some EU members 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.
“This puts UK firms in a difficult position in terms of PII. While the FCA requires that all UK regulated firms maintain PII, the demise of passporting means they are no longer authorised to provide advice in the EU.”
Porter stated: “If they have not taken one of the various routes to obtain authorisation in the EU member state where any clients are located, this is likely to result in a denial of PII coverage in respect of those clients.”
He warned that even if equivalence negotiations deliver an agreement sooner rather than later, one of the UK’s main aims in leaving the EU is the ability to diverge from the EU’s financial rulebook.
Therefore Porter added: “UK financial advisers who have not already obtained authorisation to advise should be immediately writing to their clients in the EU to confirm they can no longer act for them.”
Keith Richards, chief executive of the Personal Finance Society, said: “It is true to say that under the terms of our agreement with the European Union on our exit, the process known as passporting has ended for financial institutions in the UK.
“However, it is worth mentioning that because of onerous prudential requirements under Mifid, most advice firms have never had the right to passport into other EU markets for the full range of investment products, and so the impact won’t be as sharp as seen in other fields.”
But he added: “PII remains a major concern for the financial advice market and beyond. While most PII agreements do cover working abroad, they are subject to geographical and jurisdictional limitations, which will be set out in a policy schedule.