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Warning over ‘dodgy’ EU financial advice firms setting up shop in UK

Kit Klarenberg
Written By:
Kit Klarenberg

Dodgy advice firms are using EU ‘passporting’ arrangements to dupe British consumers into believing they are dealing with Financial Conduct Authority (FCA) regulated businesses.

According to international financial services organisation AES International, more needs to be done to protect UK citizens from these “crooked” financial advisory firms which use freedom of services laws within the EU to dodge UK consumer protection rules.

In the UK there are currently scores of companies which claim to be regulated by the FCA, but which, upon closer inspection, are actually regulated in less tightly controlled parts of the EU.

Under “passporting” rules, these companies are free to travel into the UK and sell products to unwitting consumers who believe they are dealing with UK authorised firms and individuals because the FCA issue the firms with a number. They are different from EU firms which have an ‘establishment’ in the UK, as these are regulated by the FCA and clients can complain to the Financial Ombudsman Service as a means of recourse.

If a consumer uses one of these firms, their money isn’t protected by the FSCS, and they have no recourse to the Ombudsman, in the event something goes wrong. While these listings on the FCA register are accompanied with a disclaimer stating that the business may only be subject to limited regulation, AES International believes the information would be “almost impossible” to find, much less decipher, by a typical retail investor. The firm likens the situation to a “time bomb waiting to go off”.

“I have seen innumerable examples of EEA [European Economic Area] firms passporting into the UK with large numbers of appointed representatives who easily bypass all the regulatory controls for consumer protection,” said Sam Instone, chief executive of AES International.

“One of the most frustrating aspects of this is that, if a consumer were to check the FCA register, the freedom-of-services firm would be present, giving that consumer unfounded confidence in the company; it is most unlikely the client would click through to find the disclaimers and that their interests are bound to suffer as a result.”