Firms operating across UK and EU borders post-Brexit may have to review the suitability and appropriateness of their client solutions, because the UK may no longer recognise them.
Compliance consultants TCC Group has warned that the consultation paper CP18/28 published last week, which brings EU regulations into the FCA Handbook, may mean the regulator does not recognise suitability where it involves advice or appropriateness with regard to execution-only solutions if either has been established in other EU states.
Unexpected change
TCC Group technical director Don Scott said the change is a surprising one, though he stressed it was still subject to consultation.
“There is a proposed change to Cobs [Conduct of Business Sourcebook] 2.4, which says you can’t rely on what will be EU27 firms for suitability and appropriateness.” he said, adding that this is likely to impact firms with an international footprint.
"There is a proposed change to COBS 2.4, which says you can’t rely on what will be EU27 firms for suitability and appropriateness"
“They are either going to have to think about redoing the suitability or repapering the client to the UK. That was not something that I was expecting.
“The same applies with appropriateness, so anything related to execution-only may need another appropriateness assessment. We also need to remember that the definition of ‘complex’ in the EU27 may not be the same as the definition in the UK.”
Regulatory status
He said that firms will need to think about their regulatory status and how it applies to corporate clients with operations across the UK and EU, and internationally mobile clients who will be making their own decisions about Brexit.
He added: “This is a consultation, so it is subject to change. Each firm will understand their own footprint, but they need to analyse where the handovers are for the different services and make sure that the handover is compliant within the jurisdiction where the activity is happening.
“That is the first bit of analysis. Then they will need to make a decision as to whether they put certain check points in when they handover and say we need to do this assessment now because we can’t fully rely on what we used to rely on before Brexit, or consider whether they want to repaper clients to a particular jurisdiction.
“It will impact groups across the UK and EU27. If you have a long chain, say a lot of distribution in Europe, and most of your activities [in the UK], how do you manage that situation?”
Start planning
He added that businesses currently passporting into the UK may believe that they have three years to comply, because that is the maximum length of time the new temporary permission will last for. But that could prove to be just three months for those selected early in the process.
“Most people will think they have three years to comply,” he said. “The regulator is saying we are going to tell you when you have your slot, which takes the business planning out of your hands.
“A business needs to think we might be in that first slot and start planning sooner rather than later. You don’t want to be rushing or to miss your slot. You will need advisers and lawyers – and make sure you have got them lined up.”
He noted that, while the UK has moved swiftly to put a temporary permissions regime in place, we are still awaiting similar action from the EU.
“The EU haven’t said anything on their side,” he said.
