Brexit: information for retail investments firms in the UK

The UK retail investments sector comprises many relatively small UK firms servicing primarily UK-based customers. If you have EEA-based customers (including UK expats), we expect you to have taken steps to make sure you’re able to continue servicing them now that the transition period has ended.

Servicing your EEA customers after the transition period

If you have customers in the EEA, you should have decided on your approach to servicing your existing contracts with them. We expect you to have taken the steps available to you, so you can continue servicing customers in accordance with local law and national regulators’ expectations. 

Your decisions must be guided by what is the right outcome for your customers. They should have been provided with timely communications to enable them to make appropriate decisions and take necessary steps. In many cases, it’s a poor outcome for the customer if you suddenly stop servicing them.

You should have been clear whether the services you provide to EEA-based customers are regulated by EU law (eg MiFID II, the Insurance Distribution Directive (IDD) or Solvency II) and local law, and how your ability to continue to service those customers might change now the transition period has ended.

For example, before deciding to rely on reverse solicitation to service existing EEA-based customers without local authorisation (eg under a member state’s implementation of Article 42 of MiFID), you should have sought legal advice on your plans. This should have ensured that you understand the national law in each member state where you do business, and that this course of action is permitted in the relevant country.

We expect you to bear in mind that national regimes may change over time and that this could affect your business model in the future.

If you have decided to stop servicing customers in the EEA, we expect you to continue treating your customers fairly when winding down or transferring business. You should communicate your decision to customers clearly and in good time, considering what would be a fair timeframe for winding down or transferring business. You should also support customers while they are in the process of finding alternative providers.

EEA bank account closures

The ability of UK banks to continue providing services to customers – particularly retail customers living in the EEA – will be determined by the decisions they take in light of the national regimes of the relevant EEA countries.

If you have customers in the EEA who are reliant on UK bank accounts that may be closed, you should have reviewed your capability to make and receive payments to and from an overseas account.

You should identify customers who may be affected by the change and be working with them to implement alternative arrangements, if necessary, so they can continue to benefit from their investment products.

We expect you to communicate with your customers in a timely and supportive manner.

Financial protection and dispute resolution

You must accurately assess whether your clients are covered by the Financial Services Compensation Scheme (FSCS)[1] and the Financial Ombudsman Service[2] now the transition period has ended. You can do so by referring to the COMP and DISP sections of our Handbook[3].

The circumstances in which investors of UK UCITS and UK non-UCITS retail schemes (NURS) may be able to claim on the FSCS or refer a complaint to the ombudsman service have not substantively changed as a result of Brexit.

Broadly speaking:

• Complaints or claims in relation to UK firms carrying on regulated activities from the UK relating to distribution/intermediation of retail funds (eg advising on investments) continue to be covered by the FSCS and the ombudsman service, provided the investor is eligible under the terms of those schemes.
• Investors in UK UCITS and NURS with a UK management company and managed from the UK, are still covered by the FSCS and the ombudsman service for complaints or claims relating to the management company’s management of the fund, provided the investor is eligible under the terms of those schemes.
• Investors in UK UCITS and NURS operated/managed by EEA management companies may be eligible to claim on the FSCS or refer a complaint to the ombudsman service relating to the management of the fund in certain circumstances. The position should be broadly the same as before the end of the transition period. 

However:

• Investors in EEA UCITS that are managed by an EEA management company and marketed into the UK under the temporary marketing permissions regime (TMPR) are unlikely to be able to claim on the FSCS or refer a complaint to the ombudsman service in relation to the management of the fund by the EEA management company. This was the same before the end of the transition period.
• It is possible that the home state of the EEA fund and/or its management company provides an alternative dispute resolution and/or an investor compensation scheme for UCITS investors. The scope of such schemes might be limited to investors in the EEA, meaning that UK investors in EEA funds may have lost access to redress and compensation in the relevant EEA state from 1 January 2021. This will depend on the legislation and rules in the EEA state in question. Firms and advisors should have assessed this and considered the implications for their interactions with their UK-based clients.
• Investors in EEA-domiciled retail funds with a UK alternative investment fund manager (UK AIFM) are not generally covered by the FSCS for claims relating to the UK AIFM’s management of the fund. An investor in such an EEA-domiciled retail fund may be able to refer a complaint to the ombudsman service about the AIFM’s management of the fund if the fund was managed from an establishment in the UK. This position is the same as before the end of the transition period.

Where you provide UK clients with information about relevant redress or compensation arrangements in the UK or in EU member states, the information must be fair, clear and not misleading. It should also be kept up-to-date and accurate.

You must also make sure that any reference in advertising to an investor compensation scheme is limited to a factual reference to the scheme.

Read more on the FSCS and Brexit[4].