Offshore Investment Bonds and Brexit

DanAtkinsonUK

I've been starting to look at this... Most of the offshore investment bonds we write and manage are Dublin based with a few IOM from time to time (a mixture of Life Assurance and Capital Redemption). It seems that a lot hangs on how we leave the EU (deal/no deal) and whether this (https://gov.uk/government/publications/draft-financial-services-contracts-transitional-and-saving-provision-eu-exit-regulations-2019/the-financial-services-contracts-transitional-and-saving-provision-eu-exit-regulations-2019-explanatory-information) transitional legislation comes into effect in time or not. If it does... this annex sounds relevant https://gov.uk/government/publications/draft-financial-services-contracts-transitional-and-saving-provision-eu-exit-regulations-2019/annex-run-off-regime-for-eea-firms-that-currently-passport-into-the-uk-under-financial-services-and-markets-act-2000

It sounds like things are OK for 5 years as most contracts would have come to an end or could be moved to a UK entity. Contracts of Insurance (which would be these offshore bonds) has a longer run off of 15 years which could be extended.

As Ireland is in the EU it is affected. However IOM is a Crown Dependency of UK so it isn't. Suggests that IOM might be the way forward, but as a firm that uses our DFM permissions Dublin has been preferable due to the VAT exemption (which may or may not remain, but doesn't apply in IOM).

Does anyone have any thoughts/views/insights and/or is happy to share what they are thinking/doing as a firm? Keen to get a feel as to what the consensus is forming...

Thanks all

Dan

DanAtkinsonUK

Old Mutual International page - https://www.oldmutualinternational.com/United-Kingdom/Adviser/about-us/preparing-for-brexit/

DanAtkinsonUK

Pru page - https://www.pruadviser.co.uk/about/news/pia-brexit-update/?icid=text_news-articles

Seems to imply https://www.legislation.gov.uk/uksi/2018/1149/pdfs/uksi_20181149_en.pdf means business as usual until 2022

TomLloyd_Read

We have continued to put business in Dublin for the same reasons as you Dan. From our discussions, we have decided there are too many uncertainties and so we are just going to carry on as usual until such time as this no longer makes sense.

Funnily enough had a conversation about why we dislike using IOM bonds today- the Manx probate process. I haven't had to deal with it but one of senior administrators has had nightmares about it. If anyone has personal clients with IOM bonds, and hasn't looked into this yet, I suggest you get up to speed!

DanAtkinsonUK

Thanks for sharing your approach @TomLloyd_Read. I'd forgotten about Manx probate, but recall reading that it is 'a pain'...

parawhat

Our current preference is also to use Dublin based bonds for the VAT exemption reasons too. However, like @TomLloyd_Read whilst we're keeping this under review we're not planning on making any changes in the short term until we have something more concrete to work off.

Jamie_Barnes

We don't use DFMs so our preference has always been for IOM offshore bonds, for the consumer protection angle.

DanAtkinsonUK

I've been told that Canada Life are releasing their position soon. Guess the vote last night on the Withdrawal Agreement didn't help - neither will tonight's no-confidence vote...

arongunningham

Having spoken to Utmost this week (pre-7:50pm last night) they seems quite open to explain that they simply don't know what will happen - it's as unknown as the Brexit mumbo-jumbo itself.

We are therefore thinking whether we should suspend offshore bond activity altogether for the near future. We have a client who agrees to wait (but I guess some might be in situations where it's more important to take action sooner, we'll cross that bridge when we come to it).

It is unprecedented, right?

We would normally be able to say 'based on current legislation' as a way of covering our backs , but really, we know so much can change and probably can't recommend an Irish bond (especially) in good confidence.

Even if , when the dust settles, legally owning Irish bonds is absolutely fine, there's no reason Dublin can't remove the VAT-savings, which they'd be perfectly entitled to do.

DanAtkinsonUK

Canada Life Brexit FAQs are here: https://www.canadalife.co.uk/adviser/faqs?s=Brexit

Sounds like they are expecting BAU even on Dublin whether there is a deal or no deal...

I agree @arongunningham - it's unprecendented... There is so much uncertainty around whilst a deal or not or what is sorted out.

parawhat

Thanks for the updates @DanAtkinsonUK and @arongunningham

arongunningham

Another call from Utmost:

They're awaiting confirmation from their Lawyers, but it seems COBS 4.9 confirms that existing contracts cannot be changed from the position they were first agreed under (legislation can't cause an offshore contract to cease)... I think that's what it means anyway!

https://www.handbook.fca.org.uk/handbook/COBS/4/9.html

DanAtkinsonUK

I'm not too sure on that @arongunningham as it seems to be referring to financial promotions rather than entering into/changing contracts. Part, I think, of how this all goes down is the point about being a MIFID II company or a third country company...
I look forward to your next update once Utmost have taken advice.