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Advice firms circumventing UK regulation a threat to investors 


Foreign financial advice firms, which circumvent UK regulation using passporting rules, are acting with impunity, warns AES International.

Under the European Economic Area’s (EEA) Freedom of Services rules, financial firms which are regulated in one member state are permitted to sell financial products in other member states within the EEA.

This means, a company regulated in any of the other 30 countries within the EEA can sell products in the UK, without being directly regulated by the Financial Conduct Authority (FCA).

As a consequence, the products these companies sell are not subject to the same tight rules around consumer protection as directly regulated firms. Despite this, the firm will appear on the FCA register and will often claim to be regulated by the FCA to clients as they will have been issued with an FCA number.

This is one area that AES International believes should be made clearer for consumers.

If a consumer were to use one of these companies, they will have no recourse to the Ombudsman and so could be left out of pocket if something were to go wrong.

Furthermore, if the FCA has cause for concern about a company acting under these passporting rules, the only action it can take is to complain to the company’s home regulator.

Sam Instone (pictured), chief executive of AES International, a UK regulated firm which advises British expatriates across Europe and the Middle East, says: “This is a very real problem for British investors. By bypassing the strict rules and regulations we have in the UK, these companies are putting investors at risk.

“Not only are these consumers at risk, they are often getting completely ripped off, as these firms use charging structures which have been outlawed in the UK – such as hidden commissions.

“The consumers most at risk are those who travel frequently or those who spend large portions of their time living elsewhere, such as those in retirement.

“These companies often build relationships with people while they are abroad and make much of the fact that they also have a UK office, giving the false impression that they are UK regulated and lulling people into a false sense of security.”

In addition, companies which are able to circumvent UK regulation are able to operate much more economically as they will not suffer the same overheads which come with complying with UK regulations.

“The financial services profession is, quite rightly, subject to stringent consumer protection rules which help to ensure consumers are treated fairly and that we act in their best interests – but this all comes at a cost," adds Instone.

“By circumventing UK rules, firms can cut their overheads significantly, giving them a competitive advantage over companies which would arguably serve their clients much better.”

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