THE COMPLEXITIES OF ACTING FOR OVERSEAS CLIENTS

Picture the scene. Mrs Smith, a longstanding client, has just announced she’s moving to Japan. What do you do? Wish her well and wave sayonara, or continue to manage her investments?

I’m sure most of you will be wondering why on earth you would give up a successful relationship, but have you considered the implications of acting for someone residing outside the UK?

Since we left the EU, the ability for UK-based firms to advise clients who live in other countries has essentially been removed. Recently, we’ve had a number of questions relating to this issue, so we thought now would be a good time to make your options (and the regulatory implications) crystal clear.

Advising in Europe

If your client is an EEA/EU resident, there are a couple of exemptions you may be able to utilise to continue to act on their behalf:

1. UK soil exemption: Your client may live abroad, but if your advice and the regulated activity takes place exclusively during visits to the UK, the exemption is permitted. You need to keep clear records of the client’s location during any degree of contact, as even an email or phone call made whilst the client was outside the UK could be considered cross-border activity.
2. Reverse solicitation: A less common and in some cases, riskier option is to cite reverse solicitation, which, when used correctly, it is valid under EU and UK law. British firms have every right to provide services to EU clients that act exclusively on their own initiative to seek financial advice. However, this exemption has limitations and we recommend you seek legal advice before proceeding on this basis.

It is worth remembering that although the Channel Islands and the Isle of Man are Crown dependencies, they are outside the EEA and EU directives do not apply. Gibraltar enjoys separate status and regulations such as MIFID may be relevant.

An option for clients moving overseas temporarily is to consider giving a trusted person living in the UK Power of Attorney. This can be done via a Lasting Power of Attorney (Finance) or Ordinary Power of Attorney. The donor decides who to appoint and when it can be used. For example, only for the provision of financial management when the donor is living or working overseas.

The regulatory position

Whilst the FCA may regulate the product you want to provide the client, if they live outside the UK, they are not within its jurisdiction in relation to your advice. Therefore, you need to consider if the service can be justified, in terms of the cost to your firm and the client and the effort required to comply with local legislation.

The problem lies in the fact that it is the ‘characteristic performance’ of the service that determines where the activity is seen to be undertaken. For discretionary investment management firms, it is slightly easier, as decisions are made by you in the UK, but advisers act on the instructions of the client and for regulatory purposes, these activities are determined by their location at the time the advice is given.

As a general rule, you cannot market or solicit for business outside the UK unless:

• You have written evidence of exemption from the host state
• You have been granted the relevant local authorisation

Some countries may allow UK firms to service resident clients under certain conditions, for example, by the reverse solicitation method, but there are places where is can be very difficult to act, such as Dubai and the United States.

Investment firms may be able to take advantage of National Private Placement Regimes (NPPR), which allow marketing to professional investors under specific conditions. The availability and requirements of NPPR vary by country, so you must check local regulations.

Practical considerations

You may be thinking the need to gain overseas authorisations is a mere technicality, but are you prepared to take the risk? Would you have PI cover if a complaint from an expat was to arise? Although the chances of being caught may be low for one-off or irregular work, the FCA would hold a dim view of firms knowingly operating overseas in breach of local regulations.

We are now living with Consumer Duty and if you are providing an ongoing service, can you meet your obligations? What would happen if you needed to make an urgent change and the client couldn’t come back to Britain? You really need to consider the outcomes for non-UK clients and whether they will receive fair value when judged against your wider target market.

Depending where the client is resident, there may be additional money laundering considerations. This would not prohibit dealing with them entirely, unless they were living in a sanctioned country, but there could be an increased risk to your business.

Do your research

If you find yourself in the unenviable position of having to decide whether it is wise to continue acting for an emigrating client, it might be worth seeking the opinion of a solicitor or the financial regulator in the country concerned. They will be able to confirm if there are local exemptions that may apply or if authorisation is needed. You also have to track down providers willing to facilitate an investment for clients without a UK base.

A final thought: All FCA registered firms are required to be open and cooperative with the regulator and must disclose anything it would reasonably expect to receive notice of. If you determine advice has been provided outside the UK, without the local regulatory permissions, you may need to consider making a declaration. You may also need to check if your PI insurer will cover the transaction under your current policy conditions.

For precise details about serving clients overseas, it is always worth consulting the FCA’s handbook or seeking legal advice. For more information about how to deal with the issues that arise, don’t hesitate to contact us on (0161) 521 8641 or email: info@b-compliant.co.uk