As a UK ex-pat living in Europe, one might have thought one would be spared much of the inconvenience of Brexit. Unfortunately, this is not the case, as many have found that they are receiving troubling letters from their investment manager and bank regarding the need to close their account before the year end. At Smith & Williamson Investment Management (Europe) Limited we have been helping individuals who find themselves in this uncomfortable situation, as we are licenced to provide advice to EU residents.
The UK left the EU on the 31st January 2020. We are now fast approaching the end of the transition period which will end on the 31st December 2020. Trading arrangements and citizens’ rights agreements will be negotiated during this time. Financial services seems to be down the pecking order in terms of priorities to be agreed. Until the 31st December 2020 the UK and its citizens are still subject to existing EU benefits, rules and regulations.
The Brexit saga has put UK investment firms and banks in a difficult position in regard to managing EU Residents. Many have adopted a head in the sand approach in regard to proactively looking at solutions. This is mainly due to the cost and inconvenience that is involved in establishing Brexit-proof solutions for EU residents. Once Britain is out of the EU marketplace, the banks will be forced to adhere to individual regulations which differ in each country.
The Markets in Financial Instruments Directive MiFID II came into effect on 3rd of January 2018 and governs the provision of investment services in financial instruments across the EU. It applies to investment firms, wealth managers, broker dealers (IFAs), product manufacturers and credit institutions authorised to carry out MiFID activities. (Source: centralbank.ie)
MiFID II sets out the principles of a single authorisation for firms within the EU. This may allow a MiFID investment firm to provide investment services and/or perform investment activities throughout the EEA, provided it is authorised for these activities in the first instance. This is commonly known as “Passporting”. These automatic passporting benefits for UK based firms are set to end on the 31st December 2020 unless a deal is reached with the EU.
Therefore, as it stands currently, and unless there is some agreement between now and year end, UK financial institutions will need to have separate authorisation in every EEA country where they operate.
Obtaining a MIFID licence may be impractical or unviable for many firms and some firms have been wrongfooted by the lack of progress in negotiations. More worrying is that some firms appear unaware that they may be in breach of EU rules should they simply ignore the situation. Rather than providing clients with a list of solutions and options in the event of a no-deal Brexit, firms are taking a more draconian approach of writing to clients and asking them to politely and sometimes not so politely to move their business ahead the end of this year.
Clearly this is an unsatisfactory situation for clients. One way to de-risk the situation and provide a Brexit-proof solution is to hold your investments with a MIFID regulated firm authorised to advise European residents no matter what the outcome of the Brexit challenges. For UK expats this is a particularly attractive option i.e. to continue to be serviced by a trusted and established firm like Smith & Williamson without the risk of your account being closed.
At Smith & Williamson, we have been preparing for Brexit for some time and are in the process of transferring European resident clients managed from London to our MIFID licenced European regulated Dublin office i.e. Smith & Williamson Investment Management (Europe) Limited. UK expats managed from London or regional offices will now have the benefit of working with a European regulated entity which future proofs their account. We work with specialists to provide tailored advice for European residents.
Where clients require more in-depth tax advice regarding structuring of their investments for tax efficiency and other in-depth planning, we partner with specialist advisers like Spectrum IFA Group, who have an established presence in a number of European Countries. Michael Lodhi, CEO of Spectrum, and his team specialise in the UK expat market and have particular expertise in France, Spain, Italy, Switzerland, Luxembourg and Belgium.
Spectrum helps clients gain access to secure, tax-efficient, locally authorised vehicles while Smith & Williamson Investment Management (Europe) provides the investment solution as before.
Michael notes: “As a result of our partnership with Smith & Williamson, when the transition period ends (with or without trade agreements), clients can still invest with companies whose names you know and trust, in a tax efficient manner, in the country they now call home.”
Do reach out to us if you find yourself in this situation of needing to Brexit-proof your investment and do not want to be worrying about this potential cliff edge as Christmas approaches.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Please remember investment involves risk. The value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.
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Smith & Williamson Investment Management (Europe) Limited
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Smith & Williamson Investment Management (Europe) Limited is part of the Tilney Smith & Williamson Group.
© Tilney Smith & Williamson Limited 2020