Brexit – new options open up immediately
Written by Charlie Palmer on 01/03/2019

Brexit – new options open up immediately.

The legal exemptions to enable you to do so post  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 “Reverse solicitation.”  

With sufficient evidence, the UK IFA can say it is providing the relevant service at the exclusive initiative of the EEA client, therefore exempting them from local licensing requirements.  

But this being Brexit, we also get exemptions from the exemption:  including 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.  


Worse still this clause although “recognised”, is not “harmonised”.   So, the boundaries of permitted and prohibited marketing still vary massively across the EU and whether a given firm could rely on reverse solicitation would likely be a matter of local law.   One example is that general branding and image advertising is permitted marketing in France and Germany, but lawyers have stated it will likely trigger licensing requirements in Spain.

There are added complications.

Client coverage behaviour. IFA work requires “continuous client interaction” through email and phone.  This will make it hard to produce an audit trail to evidence “client initiation” as required.


What to do if you already have EU clients. 

Most clients tomorrow, will actually be your clients today.  (ie Pre-Brexit client contact).  If you the IFA want to evidence client initiation before Brexit, then you had better get on with it!  Ask your client for a confirmation email to state that they are indeed working with you “at the exclusive initiative of me” (the EEA client)

  After hard Brexit this request for confirmation could be seem as a form of solicitation – and so banned! 

So how will you advise clients who have emigrated across  the channel?  There are some 1.2m of these according to the PFS.  


The second key exemption is a clause called Characteristic performance test

The basic premise of the characteristic performance test (CPT) is that a regulated activity should be regarded as carried out at the place where the (characteristic element of the) service is provided. This leads to the conclusion that where the particular service that a UK firm offers is not deemed to be carried out in a member state, the UK firm should not need to comply with the licensing requirements of that member state (for that particular service).  

Thus IFAs may continue to provide cross-border services to EEA clients, without triggering national licensing laws – sending emails and answering the phone and “skyping”.

But 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 written 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!


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