Passporting: Three things to consider

Paul Stanfield, CEO of FEIFA, outlines the key considerations for advisory firms considering passporting their businesses back into the UK from another EU state.

There are pros and cons to passporting. We would stress that considerable knowledge and information needs to be collated by any business before it reaches a decision. But, if your business is considering such a strategy, here is what you need to know.

Regulatory and legislative

Generally speaking, the regulatory and legal requirements of potential ‘home countries’ on the Continent result in a need for an office (the head office) of an IFA to be based there and then an IFA could passport into the UK (the ‘host country’) under FOS (Freedom of Services) or FOE (Freedom of Establishment) rules.

If under FOS, advisers can trip into the UK but will be bound by their home regulator’s rules. They cannot become fiscally resident in the UK and there cannot be a permanent office. 

This may be an option for IFAs or advisory business owners who had already seriously considered emigrating to another EU state. It would then allow them to continue servicing existing clients in the UK whilst perhaps also developing new ones in their new location.

If passporting is exercised under FOE, the company must open a legal branch, have a physical office and advisers would become employed and/or fiscally resident in the UK. 

This approach may or may not require the IFA business owner to be officially resident in the home country, dependant on local rules and laws with regards to the residence of company owners. This approach becomes potentially more relevant for advisers who wish to remain in the UK but work under what they see as a more sensitive regulatory regime.

It must be emphasised, however, that operating under FoE requires that advisers work to the Conduct of Business rules of the host state – in this case the UK. This is therefore not a way of avoiding the basic tenets of RDR.

A decision will also be required as whether to passport under IMD (the Insurance Mediation Directive) or MiFID (Markets in Financial Instruments Directive) – or both. The present proposals on the latter, MiFID II, should perhaps be considered before any major strategic decisions are made in this regard.