By Guest Writer • 22 May 2023 • 13:08
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Financial services licencing – common misconceptions.
The information below is not legal advice – if in doubt, always seek advice from a financial services solicitor.
Brexit changed a lot of things, including the way financial service providers can operate in Europe. To help you get to grips with what the changes mean for you, here are the answers to some of the common queries raised by the clients and partners of currency transfer providers. These answers were last updated in March 2023.
This is a very common misconception. When the transition period ended, UK-based financial services companies lost their passporting rights – meaning they lost the ability to operate in the European Union unless they were regulated by a relevant EU provider. If a firm is soliciting and working with clients based in Spain, they must have an appropriate EU licence.
If you’re being referred to a currency provider offering services outside the UK, you should check that they have the appropriate licence to operate in the relevant country. If the firm is operating in Spain, they should be authorised by a relevant EU authority like the Bank of Spain – FCA regulation by itself may not be enough. When using a new company, it’s important to check their licence permissions, how they protect client funds and what support you’re entitled to from a local regulator if anything goes wrong.
No, this is not the case. As above, a company that offers services in EU countries like Spain has to be licenced by a relevant EU authority, such as the Bank of Spain or Bank of Portugal. If they only have FCA authorisation they should not be offering services in Spain or other countries in the EU.
If your FX company has an EU licence, they should display details of who they’re authorised by and their licence reference number on their website. If they are not, contact them directly and ask them to share their licensing information with you. Any company which has the correct authorisation should be happy to share this with their clients, so if they’re unwilling or unable to provide proof of their EU licence, this may be because they do not have one and are therefore not authorised to provide FX services in the relevant country. If they claim they are authorised but have not listed their reference number, you should always ask which EU country has licensed them and check with the local financial regulator in that country. Almost all financial regulators publish the names of companies that they have approved to operate.
This is not the case. Any company soliciting referrals in Spain must have a relevant EU licence.
Technically, if you’re a Spanish resident and register with an FCA regulated company offering services in or from the UK, you are afforded the same protection by the FCA as a UK resident. However, a UK firm should not be soliciting business in Spain without an appropriate EU licence, and you should check their status.
You should never assume that a financial service provider has the licences they need to operate and service clients in Spain. Always check their website to find out which organisations they’re authorised by. If you can’t find the information you need, ask them to share their licence credentials. You should also check what measures they adopt to protect client funds, what safeguarding protections are in place and what recourse you have available to you if things go wrong. It’s important to check that the bank account you are paying into is a segregated client account and protected under a trust arrangement in the event the FX company becomes insolvent or financially distressed.
Individual clients based in Spain and the wider EU will still be able to raise complaints with, and benefit from the support of, the Financial Ombudsman Service provided the relevant FX company was providing services in or from the UK. The client’s nationality or country of residence won’t matter. Note that the FX provider must protect client funds by paying them into segregated client accounts. However, if a client uses a company without the correct EU licensing, they may not be protected if they wish to seek the support of their local in-country regulator.
We hope this helps clear up some of the confusion around the licensing of financial services companies post-Brexit, but here are our key takeaways:
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