Treating EU customers fairly

While we have been known to suggest that the EU does not always act as it should, in some areas, whether right or wrong, it has at least the merit of consistency. One such area is its approach to determining where a financial service is being carried out. Take the example of the investment manager sitting in his office in the City (lovely old concept, for those that can still remember it) looking after the investments of his favourite Italian client, who is sitting comfortably somewhere near Milan. We would say, rather obviously, that the investment manager was managing investments in the United Kingdom. That is where he is, that is where his regulator is, that is where the Compensation Scheme is based, that is where his counterparties know him to be and that is where complainants will find him. But ask the EU exactly the same question and they will tell you that he is managing investments in Italy. They have produced the same answer for years and they will go on doing so, quite consistently. 

For all those years this difference of view has not really mattered very much. Indeed, within the Single Market, the EU would prefer you not to know where you are – everything should be the same and everyone should work together, which does have a vestige of truth, at least when it comes down to standardised regulation. Moreover, we, in this country, have not troubled to challenge this quaint EU belief because we have always been able to live with it by routinely applying for directive-based passports which we didn’t really believe we needed, except for the purpose of keeping the peace with difficult European regulators. But now reality is breaking through and we have to confront the issues arising from years of wading in fudge.

While it would be nice to think that the EU was taking its position entirely from a dutiful desire to protect its consumers, that is really quite hard to believe. As with its reluctance to recognise equivalence in others, the EU motivation is the prevalent, predictable protectionism that pervades its practice – the self-same driver that leads it to go to extraordinary lengths to stifle reverse solicitation. The time may eventually come, and Brexit may be the catalyst, when EU consumers show their resentment at obstacles created by their politicians to prevent them from buying goods and services from wherever they choose.

Meanwhile there are decisions to take. While this country has worked hard to ensure that UK consumers can continue to receive financial services from EU entities, surprisingly enough no equivalent arrangements have been made by the EU or even by most EU countries. They, like us, could have established a temporary permissions regime, but no. In order to try to unnerve UK providers, cajoling them into relocation, they prefer to run the risk of disrupting the services delivered reliably for many years to their own consumers. And they will of course seek to place the blame on the providers and the UK authorities. 

So why might it be that FCA is so coy on this question? They, like the rest of us, are well aware of the game that is being played. But they have no intention of playing into EU hands and have hinted strongly that acting in the best interests of consumers matters at least as much as observing the irrational restriction of foreign governments and regulators. After all, providing services to EU residents does not, either this year or next, become a breach of UK law or regulation, so FCA will have no role in terminating that business. So, for those who have not already jumped, the prospect of no deal poses a significant question over how to manage the situation. We believe that the key is transparency. This is a combination of a blame-game and a tussle for hearts and minds. Consumers need to understand who is doing what and why. A pre-emptive move by providers will be seen by consumers as the simple exercise of their own initiative; the provider will be blamed. But if it is crystal clear that the provider is moving only after a direct and credible threat from EU based authorities, and if evidence of that anti-competitive behaviour is all around, the penny will drop. Is there a risk that firms will be penalised? Yes, some. But does that risk outweigh the prospect that this battle might yet be won, whether in substance or in PR terms – probably not

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