During the past decade, our industry has experienced tremendous growth in the financial services markets and never more so than within the international space.
In consequence, global regulators have hardened their attitude towards operating standards and now fully expect wealth management firms to be competent, well run organisations that can deliver appropriate solutions at the right price, and treating customers fairly has never been more in focus.
Increased global regulations and accountability are with us in our day to day operations, with Europe for example, introducing tough new legislation in the guise of the Insurance Mediation Directive (IDD) and the Markets in Financial Instruments Directive (MiFID II), and the sweeping changes in market practice that these new pieces of legislation deliver are only now being felt across the wider EU markets.
Brexit, of course, has not made matters any easier to deal with and in fact has introduced considerable uncertainties for advisers and consumers alike, who through no fault of their own, may find themselves precluded from EU or UK markets dependent on regulatory standing and residency.
Much uncertainty and confusion abounds in this area, however I believe a reasonable summary could be viewed as follows.
Commencing year 2021, should your organisation wish to continue to operate on an EU cross-border basis, you should be regulated within an EU Nation – preferably with both IDD and MiFID licensing and permissions for European business in place.
These permissions must be correctly established on a Cross Border and/or an Establishment of Branch basis. If you wish to continue to operate from the EU into the UK, FCA confirmations must be obtained to coincide with the end of the transition period.
Unfortunately, it is abundantly clear that not all advisory firms and networks have taken the necessary steps to ensure the essential parts of licensing and passporting of services are correctly in place.
In consequence, I would anticipate that post 2020, we will see a real hardening of regulatory regimes affecting cross-border advice.
In addition, we see many advisers burdened and confused by the implications that MiFID II can have on business models, renumeration structures and permissions.
Firms should now be closely examining their advisory processes to determine which route to market best suits their future business model; for example, deciding to adopt a Restricted Advice or Independent Business Model, a decision which could greatly affect a firm’s modus operandi, going forward.
Advisers and networks that by now have not implemented robust and strategic licensing may find themselves excluded from these markets, with little or no time left to organise themselves.
Below is a simple check list of the vital things one should consider.
- What is your firm or network provider’s regulated position for IDD and MiFID and UK post 2020?
- Does this remain suitable for your future business plan
- Are adequate financial resources in place to pass regulatory capital adequacy requirements?
- Have you taken steps to protect your present and future management income streams?
- Have you agreed your future adviser remuneration arrangements?
- Does a Restricted Advice or an Independent Advice model better suit your future business plans?
- Is your firm or network provider fully conversant with the above and its implications?
- PI is compulsory. Is your policy wording suitable for cross-border activities?
This list is not exhaustive. A great deal of work, and of course, financial resource needs to be put in place now in order to put any advisory firm or network on the correct footing to meet with the anticipated regulatory standards moving forward.
Written by John Westwood, Managing Director, Nexus Global IFA Network
