The role of the FCA and British expats

If you are British and have at some stage considered your financial options, it is likely that you are aware of the FCA – the Financial Conduct Authority. The FCA is a regulatory authority created by HM Treasury and is designed to provide a certain degree of financial security for consumers, businesses and organisations and ensure that financial firms do not abuse their market positions.

FCA, the FSA and PRA

Previously known as the FSA, the FCA changed its name in 2013 and redefined its regulatory authority alongside the Prudential Regulatory Authority (PRA).

The primary purpose of this split was to diverge the responsibilities of the single organisation.

Whereas the FCA primarily focuses on consumers and smaller financial firms, the PRA’s primary focus is to regulate banks, building societies, large investment firms, credit unions and insurers.

Passporting into other EEA states

Firms in the UK who are regulated by the FCA may also apply to “passport” into other countries within the European Economic Area. In a similar way, firms that are regulated within another EEA country may also passport their services into the UK to provide advice.

Firms that passport into the UK may not appear on the FCA register, and while they can technically provide advice in the UK their service limitations should be checked on their local state register to ensure they are able to offer advice on specific products.

FCA register

As part of the FCA’s regulatory process, firms and organisation that provide financial services are required to be registered on the FCA Register. The FCA Register is a list of firms regulated by the FCA and provides extensive details about the people within each organisation, and services they are regulated for and also historical information.

The FCA register also includes information of organisations previously registered and any cautionary notes against behaviour and ensures that customers can research firms they are intending to use.

Key objectives of the FCA

The primary objective of the FCA is to regulate the behaviour of over 56,000 businesses and ultimately protect the integrity of the UK’s financial system and promote effective competition between financial firms.

The FCA provides the guidelines and rules that firms must follow to ensure best practice within the financial system in the UK, and therefore provide assurances for customers that any regulated organisation has to adhere to best practices.

Role of the FCA regarding expat investments and pensions

Typically the FCA only has jurisdiction over people living in and providing services in the UK and has an extremely limited remit overseas. This means that for most non-UK residents, the FCA is somewhat irrelevant when it comes to protecting consumers and regulating firms.

That said, the FCA works very closely with the EU legislators as part of a European wide process to help protect all citizens living within the EU. However, outside of the UK, each individual jurisdiction will have their own regulatory financial body with different implementations of EU rules and regulations.

While the FCA has no real regulatory authority outside of the UK, one area where it still has authority and regulations regarding expats is pension transfers of pensions out of the UK into other schemes, such as QROPS.

Under section 48 of the Pension Schemes Act of 2015, trustees or scheme managers of pension schemes valued at more than £30,000 are required to check that appropriate advice has been taken by a firm that has permission from the FCA to provide advice regarding pension transfers – irrespective of where they are located.

Under FCA rules, this advice must take into account the benefits of the existing scheme, the benefits of the new scheme and also the investment vehicles that are used within the new scheme. The firm giving advice is required to hypothetically take into account the returns of the existing investments as well as the proposed scheme.

The FCA also requires that firms do not outsource their advice to third parties with permission – and claim to be providing the advice. It is, however, possible for an individual to offer advice without permission, provided the advice is signed off and approved by a pension transfer specialist with permission from the FCA.

FCA fee charging requirements

Under FCA regulations, registered financial advisory firms in the UK are not permitted to receive commissions in lieu of payment. This does not apply to insurance and this does not always apply to those companies outside of the UK passporting into the UK. As part of the rules, all advisory firms must now provide a fee-based advisory service which is clear and transparent.

This again does not always apply to to non-UK based firms and is a major difference in understanding where the regulatory authority of the FCA ends and how a company gets remunerated.

Fee structures outside the UK

One other specific requirement that an individual must ensure they are aware of is the charges and fees of any pension transfer. Unlike regulated firms in the UK, non-UK based firms are not required to provide services on a fee-based structure and may still receive commissions and additional bonuses regarding investments and pension transfers. This does not change with firms or individuals who have permission to advise on pension transfers.

It is therefore imperative that before making any decision regarding any non-UK financial advice, whether a pension transfer or investment, an individual completely understands any fee structures and commissions because such charges may be taken from the investment itself and therefore reduce the amount being invested.

In most cases, an experienced financial adviser will have a very clear understanding about potential costs, charges and commissions during the early stages of the consultation process – so it is never to early to seek clarification.

At any stage, if you are unclear about potential fees, it can never hurt to seek a second or third opinion.

What if you’re returning the UK?

As the FCA has no jurisdiction outside of the UK, most non-UK based financial advisory firms are not regulated to provide advice in the UK either.

This is an important factor to consider if you are not a permanent expat and intend to return to the UK at some point as you may not be able to continue working with the firm once you return to the UK and therefore will have to seek additional advice from an FCA regulated firm once you return home.

In some cases a financial advisory firm may claim to be on the FCA register but be located abroad. If this is the case, you should always check is they may be attempting to mislead you. As the FCA has no jurisdiction outside the UK, the non-UK firm is likely to be a separate entity and any such claim is technically not true.

This is not the case with all firms, but if you intend to return to the UK at some point, you should always factor this into any consultation you have with any firm while you are living abroad. Some firms will be part of a group or partnership which means that moving back to the UK is a far simpler process because they have established process which ensure you not only receive appropriate advice initially, but also don’t have to change firms once you decide to return to the UK.

Passporting into other EEA states

Firms in the UK who are regulated by the FCA may also apply to “passport” into other countries within the European Economic Area. In a similar way, firms that are regulated within another EEA country may also passport their services into the UK to provide advice.

Firms that passport into the UK may not appear on the FCA register, and while they can technically provide advice in the UK their service limitations should be checked on their local state register to ensure they are able to offer advice on specific products.

Limitations of the FCA outside the UK

If a firm is passporting out of the UK into the another EEA state, the FCA may have some jurisdiction over that firm and you should be able to establish what products they are permitted to provide advice and services for.

However, if a firm is not passporting into the EEA or is operating outside the EEA, the FCA has no jurisdiction or regulatory authority over the firm. With regards to this it is important to recognise that the Isle of Man and Channel Islands are not EEA member states.

Technically, neither is Switzerland or Gibraltar although special arrangements have been organised to provide similar rights to other EEA member states.

Danger signs a non-UK may be misusing the FCA register

One of the key danger signs that a firm may be misusing the FCA register is if they are based outside of the UK, are using the trading name of an FCA registered firm and – most importantly – claim that they are regulated by the FCA.

While they may have the same trading name, the firm that is regulated by the FCA is a different legal entity. In some cases, the firm in question may be misusing the brand name entirely.

No reputable non-UK firm or adviser would ever try to use the line “we are FCA regulated” when they are not. If you are ever in any doubt, always check the FCA register for warnings and, if you are still unsure, contact the UK based firm to see if there is any legal connection.

Ultimately, while it might sound like a differentiator, some firms have been known to use this tactic to provide false assurances so always treat any firm making claims, such as being non-UK and FCA regulated with caution.

Making an investment decision as an expat

Most countries have their own regulatory structures and therefore investment options will vary compared to what is available in the UK.

The financial rules in other countries may not be as detailed compared to what a British expat would expect, especially if they are familiar with the FCA and the UK financial services industry.

The individual should therefore contact all providers they have products with, ideally before leaving the UK, to understand what they can/can’t do with their existing investments and keep this in mind when engaging a financial adviser when living abroad.

Role of the FCA and accounting and tax

The FCA has no regulatory authority over accountants, accountancy firms or tax advisors. There are no exceptions to this – although an organisation may provide accountancy services in addition to financial advisory services.

Request a free consultation

At Experts for Expats, we have built a network of financial advisory firms in the UK and internationally which offer independent financial advice that can be trusted.

The firms we work with in the UK are FCA regulated and the firms we work with internationally are correctly regulated locally, including the USA.

If you would like a free, independent consultation with an adviser from one of the firms in our network, enter your details using the firm and we will arrange for an adviser to contact you within two working days and set up your consultation.

The consultation itself is free and will last between 15 and 30 minutes and cover as wide or narrow a range of subjects as you require. The adviser will be able to offer advice on investments, pension transfers, mortgages, property management and the tax implications of moving abroad.

Typically, expats use our services to ensure peace of mind regarding financial decisions, but also to seek second or third opinions over advice already received.

Once the consultation has been conducted, if you wish to continue using the services of the firm we introduced you to, you will be provided details of the potential fees and charging structures, but you will be under no obligation to proceed with any advice provided.