The UK Government has announced a temporary permissions regime (TPR) for inbound passporting EEA firms and funds. The TPR will come into effect in the event of a hard Brexit, and will provide a temporary backstop to ensure that such firms and funds can continue their UK business with minimal disruption.
In order to take advantage of the TPR firms and funds need to make a notification to the UK Financial Conduct Authority (FCA) as appropriate before the end of 28 March 2019.
Once in the TPR the FCA will allocate a â€œlanding slotâ€ in which the firm or fund must submit its application for UK authorisation. The FCA anticipates that its first landing slot will be October to December 2019 followed by a further five landing slots with the last one closing at the end of March 2021.
IFAC do advise a couple of inbound EEA firms are not common in the retail sector, who largely prefer to rely on the exemptions outlined below.
From the EU point of view, things are not quite so sympathetic.
The TPR above is only relevant for firms that passport into the UK.
The European Commission has so far not reciprocated with a similar regime and has instead continued to push for UK firms to submit an application for authorisation in the relevant Member State where they wish to conduct business.
The legal exemptions to enable you to do so post March No Deal Brexit are now contained in two key exemptions.
After all these years of trying to comply, now for the fist time a regulator tells you about the exemptions!
First exemption is called â€œReverse solicitation.â€
Firstly the UK IFA can say she is providing the relevant service at the exclusive initiative of the EU client, therefore exempting her from local licensing requirements. The catch here is that you need evidence.
And this being Brexit, we also get exemptions from the exemption!
These include that the IFA does not solicit, promote or advertise, any new products or services (in any way) to the EEA client.
That is a shame if you are advertising or running client newsletters - you're now unable to take advantage of the exemption.
But worse is to come. Just as the chaos in parliament is only half the game, and the other half is played out across the channel, so to our understanding relating to trade on the continent.
The reverse solicitation exemptions are â€œrecognisedâ€, but are not â€œharmonisedâ€.
So whether an IFA can rely on reverse solicitation would likely be a matter of local law.
And there are added complications. IFA work requires what the regulators call â€œcontinuous client interactionâ€ through email and phone. It's a service, of course.
This makes it hard to produce an audit trail to evidence â€œclient initiationâ€ as required.
If you gained a client from a chance encounter on a chair lift - then who initiated that one?
And what about clients already over there? (ie Pre-Brexit client contact).
You, the IFA need to evidence client initiation before Brexit!
Ask your client for a confirmation email to state that they are indeed working with you â€œat the exclusive initiative of meâ€ (the EEA client)
And, in a final twist in the staggeringly complex world of brexit, don't forget that this request for confirmation could be seem as a form of solicitation â€“ and so banned!
So when all those problems with reverse solicitation are considered, it might be better to rely on the second key exemption.
This second exemption is called the "Characteristic performance test
The characteristic performance test (CPT) says that a regulated activity should be regarded as carried out at the place where the (characteristic element of the) service is provided.
Thus, using this exemption IFAs may continue to provide cross-border services to EEA clients, without triggering national licensing laws.
So you are sending emails and answering the phone and â€œskypingâ€ comfortably from your solar driven home office, advising across the EU without interference from those pesky foreign bureaucrats. Right?
Well, actually this too is open to interpretation.
If you receive an order, in the UK, from a client in France to purchase 100 shares of X plc.
FCA have stated that they would likely view both the act of receiving the client order and its subsequent execution as taking effect in the UK.
So no passport required.
However, lawyers have now stated that the French regulator is likely to view both (or at least the execution) as taking effect in France.
You could face arrest in France!
It has always seemed wrong to IFAC that the FCA have moved their position over the years from â€œrequesting notificationâ€ for passporting activities, to â€œgranting authorisationâ€ for the same.
These authorisation applications have frequently been challenged by the FCA where the IFA was unable to justify the need.
A speculative application to trade abroad is no longer accepted on this basis, where ten years ago this was standard practice, although rarely did any IFAs bother with it.
After a hard brexit, no permission to trade abroad will be required, at least in theory, unless you are relying on the characteristic performance test....CPT.
In that case the work done across border from that fancy garden office is regulated anyway.