Regulation
There's no larger topic in recent years than the financial industry and it's regulators. The collapse of the global economy was mainly due to complex property derivatives, being sold as low risk investments. The blame for this misinformation, and 'gambling' with deposit holders money, fell with the regulators and their lack of intervention and control.
An expat seeking financial advice whilst in Spain, is fortunate to have a wide range of choice. Financial, mortgage, and insurance advice has come under stricter controls in the UK, and their are higher requirements for qualifications, experience and quality of advice. In 2013 there is another major overhaul in the UK advisor market, with the Retail Distribution Review, which will require financial advisors to reach even higher levels of competence. It is possible to take advantage of the UK regulatory framework in Spain.
Spain has not been as advanced as the UK, however it is making steps to improve. There are a number of ways an advisor can operate, when giving advice to expats in Spain :
Unregulated
It is, fortunately, increasingly rare to find totally unregulated advisors. This is because in recent years, throughout Europe, it has become illegal to provide advice on certain financial products without some form of regulatory supervision. A totally unregulated firm may have no professional indemnity insurance, providing the client with no protection.
CNMV Regulated
This is a Spanish regulatory body. Their main focus is on the sale of financial products, advice on investment vehicles, stock trading and brokerages. Although not as advanced as similar institutions in the UK and USA, they do provide a good regulatory framework for financial institutions in Spain
DGS Regulated
The DGS is again a Spanish regulatory body. They focus more on areas such as pensions and insurance based investments. It is possible to have a wide range of investments that would normally fall under CNMV monitoring, but once placed in an insurance wrapper e.g. a pension, they become regulated by the DGS. Spain has made dramatic changes to its regulatory bodies over the past decade, and they are moving towards the comprehensive nature of bodies such as the UK FSA.
FSC Regulated
The Financial Services Commision, could be considered the 'baby brother' of the the FSA. It deals with firms in Gibraltar that provide financial advice. Many Gibraltar based firms will also operate outside of their home country, whilst still being under the supervision of the FSC. This is called passporting, and there are many firms that operate in Spain (for example), who's head office is in Gibraltar, and hence the regulation and compliance is dealt with from Gib. The FSC would be more akin to British expats in Spain, as it is a 'British' regulator, however it is not as comprehensive as the FSA.
FSA Regulated
The most advanced, and largest regulator in Europe is the UK Financial Services Authority. It is possible to receive advice from a UK FSA regulated firm, anywhere in Europe. This is due to European freedom of trade laws, that state a UK company can operate in Europe and report back to the FSA for its compliance and regulatory monitoring. Their are tough qualification, experience, training, and development requirements for an FSA regulated firm. The FSA also have extensive powers and controls to ensure the customer is being treated fairly.
An FSA regulated advisor has to offer the client the option of taking financial advice on a fee basis, or commission basis. This reduces commission driven sales, so an advisor who is being paid a fee, is no longer motivated by the return they may receive from the product provider.
A UK FSA regulated firm can operate under two directives in Europe, these are IMD or MIFID. IMD is the most common as it covers insurance, pensions, and insurance based investments (e.g. investment bonds). Some firms also use MIFID which allows the company to advise on areas such as unit trusts and collective schemes.
Table summarising permissions for an IMD authorised advisor :
A good form of consumer protection for an expat client in Spain, could come from dealing with an FSA regulated firm with a UK office. If they keep their files in the UK as well, this is another advantage as it makes them more accessible to the regulators. However it is a personal choice, and many clients benefit from dealing with an advisor they have known for sometime.
Other Regulation
There are many other companies that utilise the services of offshore regulators. In general they do not have the same controls, and authorisation as the major financial centres such as the UK, which may affect a clients rights to redress in the event of poor advice.
The contents of this page is correct to the best of our knowledge, however we cannot guarentee accuracy, and welcome feedback. It is always important to do your own research on your financial advisory firm of choice. Quality of advice is down to the individual, and an experienced and trustworthy advisor can provide a good service whatever the environment.
