Firms with EU footprint had to adjust to operating from a third country in relation to the EU from 1 January 2021. Retail financial services firms cannot rely on pan-European set of rules for servicing customers in the EU and with passporting lost and no equivalence available in the retail investment sector, the options for PIMFA firms to continue cross border trade with the EU are limited and mostly dependent on the approaches adopted by national regulators in the EU Member States.  

The FCA advises firms in the retail financial services sector, who wish to continue to serve clients in the EU, to speak to local regulators in the EU Member States and ensure they understand the impact the national regulators’ approach will have on their business post Brexit transition. Firms are expected to take the steps available to them to make sure they act consistently with the local laws and expectations. 

Firms that wish to continue servicing clients in the EU post Brexit will have to establish in a Member State and obtain authorisation from the local regulator. They can also establish an authorised passporting entity in one of the EU Member States to undertake investment business across the rest of the EU. Establishing an entity for business in one country or one for EU-wide passporting, are two different things with different requirements and costs. Firms  need to decide what is best for their operations and investigate the situation in different EU member states to suit their particular purposes.   

Alternatively, firms could merge with a firm that already operates in the EU27, transfer clients to other firms and withdraw from the EU market or seek to do business on a reverse solicitation basis without EU establishment. The last option is not something we would recommend as a general policy approach because the situation in specific countries differs depending on the attitude of the regulator.  The picture in the EU27 is also subject to change due to evolving and complex nature of the Brexit process and new regulatory guidance and law coming into effect in due course. 

As far as a reverse solicitation is concerned, care should be taken when operating on this basis as different Member States attach different conditions to it. The ‘exclusive initiative’ of a client is interpreted strictly and it applies to a service, not to a relationship. For UK expatriates based in an EU Member State, service could be provided outside the scope of the local regulatory perimeters by contacting or engaging a client only when they are in the UK. But even the ‘fly out’ model has in some Member States a very narrow scope.

For wealth management firms the discretionary management of portfolios has also been of concern.  In general, this activity as broadly being a UK one not necessarily subject to passporting, so UK authorisation for the management of portfolios from within the UK on behalf of clients based outside the UK will suffice.  But this has been subject to an extent to interpretation within other EU member states and in some cases the expectation has been that over the medium term (say, 5 years) there will be a migration of the portfolio management function to within the EU.