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Have you ever taken a low-cost flight to Europe and claimed compensation when that flight was delayed?
Perhaps you’ve bought an investment fund or travel insurance in the past, own shares or bonds, or plan to retire to a holiday home in the Spanish sun?
You may have used your mobile phone on a business trip to Paris, and been pleased to discover the roaming fees were cheaper than you expected.
Like it or not, many of the financial rights and protections we enjoy, whether we are on holiday or dealing with our stockbroker, are governed by EU rules.
Legislation handed down from Brussels not only makes it easy for us to claim a state pension while living in France. Incoming EU regulations — which we may not keep in the event of Brexit — will force UK fund managers to state the exact cost of owning their products for the first time.
If we leave, however, the question of which EU rules we follow and which we do not becomes clouded in uncertainty. FT Money has scrutinised the small print, to reveal where Brexit could put your finances most at risk, and where a divorce from the EU could be welcomed.
“The EU provides much of the legal underpinning of many things we take for granted,” says George Peretz QC, an expert on EU law and a barrister at Monckton Chambers in London.
“We have rights in other EU countries, and citizens of those countries have rights here. If we leave, we have to renegotiate those rights. What we keep, and how long it takes to get there, well, that will be an extremely lengthy process. It takes a long time to write, or rewrite, laws.”
Post-Brexit uncertainty for investors
If the UK votes to leave, the nation will have two years to renegotiate its terms of trading and dealing with the EU.
In the interim, even the best-intentioned financial services companies may not know how to go about protecting investors or resolving their questions.
The UK government has said two years is too short a time to finalise what would be one of the most complicated divorces in history. Policy experts also warn two years that may not be long enough for civil servants to review and redraft the compendium of detailed financial regulations that the UK has taken on from Europe over the past four decades.
“Companies like ours could find themselves in a regulatory vacuum,” says Andy Bell, the founder and chief executive of stockbroker and pensions provider AJ Bell. “And what we really don’t want is a free-for-all where financial companies start to pick off the EU rules that they like from the ones they don’t.” Mr Bell says he started out pro-Brexit, but has become a “reluctant realist”.
So what has Europe done for investors?
There are some EU rules that private investors may be glad to see the back of. One forbids insurers to sell motor policies to female drivers more cheaply, even though actuaries consider women to be less risky drivers. UK bankers would also be likely to celebrate their liberation from an EU-imposed cap on performance bonuses.
Investor advocacy groups, however, warn that a Britain outside Europe might permit a weakening of controls on the behaviour of banks and asset managers because of the outsized role of financial services in our economy.
Mick McAteer, the head of the Financial Inclusion Centre and a former member of the board of market regulator the Financial Conduct Authority, says: “What you could have after a Brexit is a government that takes more and more notice of those siren voices that call for less regulation of financial services because it’s a ‘burden’ that makes the City ‘less competitive’.”
One pensions campaigner, who declined to be named because her employer prevents staff from publicly discussing the EU referendum, points to the case of Equitable Life, which closed to new business in 2000 after coming close to collapse, leaving hundreds of thousands of the insurer’s pensioners and policyholders out of pocket. It was the European Parliament that rode to their rescue, in 2007 calling on the UK government, which had dragged its heels on compensation, to hand them a £1.5bn payout.
Buying investment funds
If the UK stays in the EU, UK fund managers will from January 2017 be legally required to tell investors exactly what it will cost to own their products, and stick to it. At the moment, fund managers such as Fidelity and Schroders are not obliged to show investors this exact price. Instead, they state partial costs in the form of what may be called an “ongoing charges figure”, then add the rest at the end of the year, when they have totalled up what they spent. A “performance” figure for a fund, seen at the end of the year, is stated after such charges, although retail investors are not told how much they were.
Brussels has had enough of such conduct, so it wants to give us the snappily-titled “packaged retail and insurance-based investment products regulation”. Known as Prips, this rule states that fund managers must price their products at the point of sale.
Whether UK funds will still be required to adhere to this regulation is now uncertain, says Andrew Henderson, a partner at solicitors’ firm Eversheds. “If we exit, that regulation would no longer have legal effect once we are out,” he explains. “For it to be law, the UK government has to take a further step and follow that EU law.”
Buying shares and bonds
Private investors are also always keen for their stockbroker to find them the best available price for any shares or bonds they wish to buy. A sweeping and hugely ambitious piece of EU legislation called Mifid II, which has been hotly debated for years and delayed because of the massive technical work required to implement it, aims to compel brokers to do the best job for investors.
“Say you want to buy [shares in] Air France,” explains Guillaume Prache, the managing director of Better Finance, a trade body that represents retail and institutional investors. “Mifid II gives your broker the duty to search all the exchanges this share is listed on to find you the best price, instead of having a relationship with only one exchange, which is much easier for the broker.”
Not everyone is a fan of Mifid II, least of all fund managers who buy and sell bonds and other debt products that are not traded openly on exchanges. Fund managers’ lobbyists say that a part of Mifid II that requires them to state the price they expect for a bond before putting it on sale will cause debt markets to dry up. This could even cause the values of the bond products private investors own to fall.
Its fans, however, point out that the massive Mifid II is an extremely considered response to the 2008 financial crisis, designed to seal up cracks in financial risk management across Europe — and the UK may retain most of it to allow banks and fund houses to continue operating in EU countries.
The cost of a flight and holiday emergencies
Brussels also has a hand in the cost of our overseas holidays. The Open Skies agreement allows airlines from different EU nations to fly in and out of each other’s airports. “It arguably made flying cheaper,” says Stephen D’Alfonso, head of public affairs at the Association of British Travel Agents, because it facilitated the existence of low cost airlines that fly all over Europe, greatly increasing competition.
“Ryanair is Irish, but because of Open Skies it can operate its aircraft from any EU member state to another,” Mr D’Alfonso says. “Beforehand, you could only get a British airline abroad [from the UK], and an airline from that country to fly back.”
Abta fears that the UK’s access to Open Skies would be vulnerable post-Brexit and that two years is not long enough for Britain to renegotiate its position.
At the moment, rules allow delayed travellers to claim full refunds for flights that are delayed by more than five hours. More than three hours late, and you are entitled to compensation of up to €250-€600, depending on the distance of your flight. Delayed passengers usually contact their airline first to try and get refunds. If their claim is rejected, the Civil Aviation Authority is duty-bound to investigate, and to help travellers escalate valid complaints.
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That system would become uncertain in the event of a Brexit, Mr D’Alfonso argues, because, “they would not be obliged to process such claims if there was no UK law saying they must do so. This is an EU regulation and [in the case of Brexit] it would fall away.”
UK travellers within the EU can also currently carry European Health Insurance Cards (EHICs), which entitle them to medical treatment on the continent. Hospitals in EU countries treat EHIC holders on the same terms as if they are locals. The cost of the actual medical bill, in the case of UK citizens, is charged to the NHS.
Insurance for travel to EU countries could also become more expensive if we lost the EHIC, warns Carol Hall, head of European affairs at the Association of British Insurers.
“Insurance companies would have to look at those [European travel insurance] products and if there is now a gap in provision, so do I need to charge more for the health element that was covered [by the EHIC]. We still don’t know what would be in place of the relationship we have now.”
Mr Peretz at Monckton Chambers goes even further, saying: “Without the EHIC, all of us as travellers have to fall back on private insurance. It may become like travelling to the US, where medical bills can run into hundreds of thousands of dollars, pushing up the cost of travel insurance when visiting the US.”
Owning a place in the sun
The ease of spending part of the year in a European holiday home could also diminish after a Brexit, Mr Peretz muses, with European cities gaining the freedom to lock Britons out of purchasing homes.
The EU’s principle of capital moving freely between member nations allows citizens of all member countries to buy homes in other member countries. That could change, warns Mr Peretz, citing the example of Switzerland, which is not an EU member and which in 2012 implemented strict new rules on non-resident home ownership.
“You cannot buy a chalet in [the ski resort of] Zermatt if you don’t live in Switzerland,” he says. “What is there to stop the Mayor of Paris restricting foreigners from buying there? If she did this, it would apply to Britons.”
Mr Peretz adds that Britons’ right to draw their UK state pension while living elsewhere in the EU would also become thrown into doubt if Britain left the union. Pensioners have the right to live in Spain and receive a pension from the UK. “It is a matter of EU law that the UK is required to carry on paying your pension. We can carry on after Brexit of our own will but it is under EU law.”
He adds that it is “hard to see why” EU nations would want to give Brits the same rights that we enjoyed before after a Brexit.
And for the ultra-wealthy . . .
For multimillionaire investment bankers, a Brexit could bring some relief from EU rules, says Ms Dworetsky of Withers.
Top of the list of hated legislation are rules that cap bankers’ bonuses to 100 per cent of their salaries. The rules have made banks do a lot “rejigging” and enter “complex and bizarre arrangements” for rewarding their top staff, Ms Dworetsky says. Indeed, some bankers in the UK have received a bonus in the form of shares in specially created companies, so they did not have to pay income tax on their variable compensation.
Ms Dworetsky believes the UK could allow the bonus cap to lapse following a Brexit, particularly since the British government has already vowed not to comply with a demand from Brussels that it extends the pay restrictions to more than 1,000 smaller institutions across the City of London.
Another, broader concern for the very wealthy would be what happens to the values of prime London property if the UK’s economy is damaged by a Brexit, or if EU citizens’ freedom to buy in Britain is constrained.
A KPMG poll of 25 property investors, who between them control assets worth more than $400bn, found that two-thirds believed a Brexit would mean less foreign investment into UK property and property companies. This investment slowdown may only last during the “period of uncertainty as new terms of engagement with Europe are being worked out”, KPMG’s report stated.
According to Ms Dwowetsky, meanwhile, uncertainties over the continued free movement of capital between EU nations could dissuade wealthy Europeans from investing in British assets — not just houses but small companies too.
“If I am a French banker living in London, and I sell my home in France, can I repatriate the funds easily to the UK?” she says. “We do not know of course, but that is the nub of why a Brexit could be bad. It is the uncertainty. No one knows how it will actually look.”