Scores of companies are ‘dodging’ UK consumer protection rules and duping consumers into believing they are dealing with FCA regulated firms, it has been claimed.

EU ‘passporting’ laws are allowing “dodgy financial advisers to set up shop”, according to AES International.

The company called this week for action, saying more needs to be done to protect UK citizens from such firms, which are regulated in what it called "less tightly controlled parts of the EU".

According to the FCA, a UK-authorised firm may be eligible to carry out its permitted activities in another EEA Member State if it fulfils the requirements under the scope of the relevant single market directive.

This eligibility is referred to as an ‘EEA right’ and exercising this right is known as ‘passporting’. An eligible firm may choose to either:

• establish a presence in another EEA Member State, (the ‘host’ state), known as an ‘establishment’ passport, or 
• carry out its permitted activities cross-border, without establishing a presence in the host Member State, referred to as a ‘services’ passport.

{desktop}{/desktop}{mobile}{/mobile}

Sam Instone, chief executive of AES International, a UK regulated firm which specialises in advising British expatriate clients, said the rules mean companies are free to travel into the UK and sell products.

He said that “unwitting consumers believe they are dealing with UK authorised firms and individuals because the FCA issue the firms with a number”.

They are different from EU firms which have an ‘establishment’ in the UK, he explained, as these are regulated by the FCA and clients can complain to the Financial Ombudsman Service as a means of recourse.

Mr Instone said: “I have seen innumerable examples of EEA firms passporting into the UK with large numbers of trading styles or appointed representatives who can easily bypass all the regulatory controls for consumer protection.

“While the FCA do have a disclaimer on their register stating these firms may only be subject to limited regulation and that clients should ask the firm about its complaints and compensation procedures; it would be almost impossible to find or decipher by the normal retail client.

“The terminology and procedures in European passporting aren’t easy for a client to understand and these EEA companies operating through a dubious mist of complexity are a time bomb waiting to go off.

“One of the most frustrating aspects of this is that, if a consumer were to check the FCA register, the freedom-of-services firm would be present, giving that consumer unfounded confidence in the company; it is most unlikely the client would click through to find the disclaimers and that their interests are bound to suffer as a result.”

He added that the conduct of business standards are so different in other EEA states, particularly in relation to transparency and charging, that most firms of this type simply bypass it.

The FCA declined to comment on the specifics of the claims but sets out the rules on its website.

This stated: "A UK-authorised firm that is dual-regulated (by both the FCA and PRA) and wishes to exercise its passporting rights must notify the PRA of its intention to do so. A solo-regulated firm must notify the FCA.

The notification must provide the information set out in the applicable single market directive and include whether the intention is to set up an establishment or provide services into the host state.

"The activities that are 'passportable' are set out in the relevant EU directives. Activities that are not covered by the directives are not passportable. A firm wishing to carry on such activities would need to contact the relevant competent authority of the host state to seek direct authorisation for these activities."