United Kingdom: The Financial Safe Haven Post-Brexit – Essential Guide for Spanish Investors
The United Kingdom possesses one of the most robust and comprehensive financial regulatory frameworks in the world. Any business wishing to establish operations in the UK and provide financial products or services must obtain the relevant authorisation under the Financial Services and Markets Act 2000 (FSMA) or under the applicable regulatory regimes for payment services or electronic money providers.
It is essential to understand that carrying out regulated activities in the UK without proper authorisation constitutes a criminal offence, and any profits derived from such activities will be considered proceeds of crime under anti-money laundering legislation.
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Regulated Activities: A Broad Spectrum
The range of activities requiring authorisation in the UK is extensive and goes well beyond obvious financial operations such as banking, insurance, fund management and payment services. FSMA also regulates:
- The provision of financial advice on investment products, pensions, insurance and mortgages, as well as wealth management services.
- Lending to consumers and, in certain cases, to small businesses, whether by way of secured or unsecured loans, or residential mortgages.
- Intermediation in relation to insurance, mortgage or credit products.
- Certain activities involving the lease of goods to consumers.
It is important to highlight that FSMA encompasses these services even when they are not the core activity of the business, which means that, for example, many retailers offering credit or insurance will require regulation.
The Authorisation Process
If there is any possibility that your business may require authorisation, early legal advice is strongly recommended. The authorisation process is complex, involves the submission of significant information, and the regulator has a minimum of six months from receipt to reach a decision.
The required information includes a detailed business plan. Senior management and controllers of the business will also require regulatory approval.
The application must demonstrate that the firm has personnel who understand the relevant regulatory requirements and that it is structured to comply with them. In particular, if the UK operation is relatively small, the UK Financial Conduct Authority (FCA) must be satisfied that the “mind and management” of the business is located within the UK.
Depending on the nature and jurisdiction of the applicant business, the FCA may be unwilling to authorise a UK branch of a non-UK entity.
Anti-Money Laundering Registration
Even if a business does not fall within the scope of financial regulation, it may still be subject to a registration requirement for anti-money laundering supervision. Although less burdensome than full authorisation, it still involves an assessment of the business and its ability to meet regulatory standards. Failure to register (and comply) constitutes a criminal offence.
Control of a Regulated Entity
Non-UK entities seeking entry into the UK financial services market may choose to acquire an existing regulated business rather than establish one from scratch. While this may be advantageous—particularly where key personnel remain with the firm—prospective acquirers must be aware that the UK regulatory system includes a “change of control” regime. This requires prior notification of the proposed acquisition and approval of each new controller.
For this purpose, control may be direct or indirect and does not follow the conventional meaning under company law. Instead, depending on the business, it may mean owning or controlling as little as 10% of the target entity. While refusals are relatively rare, prospective controllers must be prepared to disclose financial and other information as part of the application and expect approval to take approximately three months. A change of control cannot proceed without such approval.
Prevention of Financial Crime
The UK has a rigorous legal framework aimed at preventing financial crime. The laws apply in principle to all businesses operating in the UK, regardless of corporate structure, size, or sector.
It is essential that all UK businesses conduct a risk assessment and implement appropriate policies and procedures to mitigate such risks and ensure compliance with applicable law.
Anti-Corruption and Bribery
The Bribery Act 2010 applies to any entity incorporated in the UK, as well as any other person carrying on business in the UK. It applies to UK businesses even when conducting business abroad, as well as to all UK nationals and ordinarily resident individuals, regardless of where they are in the world or for whom they work.
It also applies to any person conducting business in the UK and to any activity occurring within the UK. Therefore, whether UK operations take the form of a branch or subsidiary, the Bribery Act will apply to all UK-based activity and has broad extraterritorial application to UK nationals, residents, and UK-incorporated entities.
The Bribery Act creates a number of broad criminal offences that may be committed by a range of individuals. The first three categories of offences may be committed by the company itself, any involved director or senior manager, and any other involved individual.
The Bribery Act covers employees (permanent, fixed-term or temporary), consultants, contractors, secondees, home workers, casual workers, agency staff, volunteers, interns, agents, and any other person associated with the business.
The maximum penalty for an individual is up to 10 years’ imprisonment and an unlimited fine. For a corporate entity, the penalty is an unlimited fine and the potential for reputational damage.
Where the offence is committed with the consent or connivance of a senior officer, both the officer and the company (or partnership) will be held criminally liable.
Bribing and Being Bribed
Bribery occurs where a person offers, promises or gives a financial or other advantage to another person, intending that advantage to induce or reward improper conduct—namely, conduct not performed in good faith.
It does not matter whether the person being bribed is the one who would carry out the improper behaviour; what matters is the intention to bribe and the resulting dishonest conduct.
Conversely, being bribed consists of accepting, agreeing to receive, or requesting a financial or other advantage, with the intent that a function will be performed improperly, whether by the recipient, the briber, or another party.
Bribery of a Foreign Public Official
It is an offence to bribe a person holding a legislative, administrative, or judicial office outside the UK, with the intention of obtaining or retaining business or a business advantage, and of influencing that person in their official capacity.
This also applies to anyone performing a public function for a country other than the UK or a public international organisation. There is no exemption for so-called “facilitation payments,” regardless of how small they may be.
Failure to Prevent Bribery
It is a criminal offence for any relevant commercial organisation—i.e., companies or partnerships incorporated in the UK, or foreign entities carrying on business in the UK—to fail to prevent bribery by persons associated with it.
Associated persons are those providing services for or on behalf of the organisation. This includes not only employees, but also agents, contractors, and distributors.
It is irrelevant where the associated person is located or whether the conduct is criminal in the jurisdiction in which it occurs.
For example, a UK-based organisation may be guilty of “failing to prevent bribery” if a non-UK third-party agent operating overseas bribes an official in that country to secure business for the UK organisation—even where the agent and official are not directly subject to the Bribery Act and regardless of the legality of their conduct under local law.
Failure to Prevent the Facilitation of Tax Evasion
The Criminal Finances Act 2017 introduces a similar corporate offence to that under the Bribery Act. It creates a criminal offence for relevant organisations (as defined under the Bribery Act) that fail to prevent associated persons (also similarly defined) from facilitating the evasion of UK or foreign taxes.
While tax evasion and its facilitation are already criminal offences, this corporate offence aims to impose accountability on organisations for the conduct of their staff and wider associated persons.
A defence is available where the organisation had in place reasonable prevention procedures or, in the circumstances, it was reasonable not to have such procedures.
This recognises that, unlike bribery, which may affect any business sector, some businesses are not realistically exposed to tax evasion facilitation risks.
Prevention of Money Laundering and Terrorist Financing
The UK adopts a two-tier approach to anti-money laundering (AML) and counter-terrorist financing (CTF). A general set of offences applies to any person in the UK and to businesses, regardless of sector. Additional obligations apply to those operating within broadly defined “regulated sectors.”
The primary offences applicable to all persons are found in the Proceeds of Crime Act 2002 and the Terrorism Act 2000.
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