What is this about?
Our Swiss based customers are asking us how they can sell into the EU after they lost their FINMA regulation in connection with the new FIDLEG laws in place. Our UK-clients ask us how to distribute into EU after Brexit. Can I sell to my target clients without a license in the EU? If I want such license, what are the requirements and options?
We summarize answers to these questions for you!
1. Selling into the EU – the license problem
Promoting financial products into the EU can be done either via an EU license that is passported into the respective target country in the EU or via local private placement rules. While the first option is clean and straight forward (provided the financial products have the respective set up to be sold in the EU) the second option is a case by case analysis for each country. Some countries maybe very restrictive which limits private placement activities substantially.
While companies regulated by the FCA in the UK have lost the benefit of a passported license from 01.01.2021, Swiss based companies suffer from a lack of suitable license regime that would be accepted in the EU.
2. What are my options?
Swiss or UK based distributors may use the license of an EU licensed entity that “rents out” its license to the distributor (also known as “tied agent concept”). Such options are offered by several providers, but come with certain disadvantages. The license owner needs to get deep information about the clients of the distributor, often license owners charge a percentage of the distribution fees received, control is with the license owner and switching to an alternative provider maybe complex. Also, the distributor will act under the brand of the license owner rather than his own and there is credit risk on the fee flow as your clients may no longer pay to your bank account directly.
Alternatively, the distributor may set up his own company in the EU which will apply for a suitable license by the relevant regulator.
3. What jurisdictions are available?
While in theory all EU jurisdictions offer a suitable license, most common jurisdictions we see in the market are Germany, Netherlands and Liechtenstein.
Due to its close location to Zurich, its attractive tax regime and an accessible regulator, Liechtenstein offers a lot of advantages for Swiss based companies. For UK companies in particular substance requirements are more challenging, so we advise to analyze the individual situation to achieve the optimum set up for the individual needs.
4. What requirements do I have to fulfil?
While some jurisdictions like Germany offer a “tranched” license where only distribution activity gets licensed, others like Liechtenstein require a full portfolio advisory license. However, in Liechtenstein the regulator accepts a “light touch” on portfolio advisory requirements in case focus of the license is on distribution.
Clients should be aware that a license is a proper MIFID license and therefore any EU-jurisdiction requires local office and substance, suitable directors, an independent chairman, internal audit and a suitable set of procedures. In Liechtenstein the commuting distance to Zurich offers certain advantages with respect to substance requirements.
5. What are costs and timing?
Liechtenstein offers the advantage of a two-step application process. In step one, the FMA (Finanzmarktaufsicht, the regulator in Liechtenstein) checks whether the requirements for application are given and issues a go ahead, step two is then the actual application itself.
Liechtenstein tax rate of 12.5% helps. For other jurisdictions tax efficient solutions are possible, too.
We at LINDEMANNLAW have experience and a track record in setting up licensed entities in various jurisdictions. We can support the entire project from license application, social security and labor contracts, finding a suitable office and ongoing corporate governance. Our aim is to find the most suitable set up for you instead of selling a of the shelf solution to you.
You want to relocate and obtain EU-license? Call or mail us.
