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 attitudes 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, writes John Westwood, director of Nexus Global IFA Network.
Increased global regulations and accountability are with us in our day-to-day operations.
Europe, for example, has introduced tough legislation in the guise of the Insurance Distribution Directive (IDD) and the Markets in Financial Instruments Directive (Mifid II), and the sweeping changes in market practice that these pieces of legislation deliver are only now being felt across the wider EU markets.
Additional regulatory approval
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, however, abounds in this area.
Commencing in 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, Financial Conduct Authority (FCA) confirmations must be obtained to coincide with the end of the transition period.
Re-evaluate business processes
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.
Cover all bases
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.
So what questions should they ask themselves and to their advisory network?
- 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?
- Professional indemnity insurance is compulsory. Is your policy wording suitable for cross-border activities?
John Westwood
This list is not exhaustive. A great deal of work, and of course, financial resources need 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.
This article was written for International Adviser by John Westwood, director of Nexus Global IFA Network
