Tuesday, 04 June 2024
by Achille Deodato, CEO Indigita SA
Introduction
When clients relocate internationally, the implications for their financial institutions are far-reaching. The triggers for such relocations are manifold: from personal life changes, like marriage or retirement, to professional shifts, such as job relocations or seeking better tax regimes. These movements necessitate substantial updates in how banks and asset managers handle client profiles. The most evident changes involve updating Know Your Customer (KYC) documentation, tax forms, and reassessing risk ratings. However, often underestimated are the essential adjustments needed to ensure that investments remain appropriate from both a product placement and tax perspective.
Implications of Non-Dom Status Changes in the UK
Recent speculation about potential changes to the non-domiciled (non-dom) status in the UK highlights the critical nature of domicile in asset management. The non-dom status offers tax advantages that are attractive to many; however, rumors of its abolition have prompted some to consider relocating to jurisdictions with favorable tax laws. For example, a shift from the UK to countries like Italy or Greece necessitates a comprehensive review of an individual's asset allocation by their financial institutions. Products suitable for a UK non-dom might not be suitable or tax-efficient for an Italian resident, emphasizing the need for domicile-aware financial planning.
Current State of Non-Dom Rules in the UK
Despite the buzz during the March Budget announcements, no concrete changes have been made to the non-dom rules in the UK. This lack of clarity places both clients and financial institutions in a precarious position, unable to make informed decisions without definitive legislation. The situation underscores the inherent instability that political changes can introduce into financial planning and asset management.
The Importance of Flexibility in Financial Institutions
The ongoing uncertainty with UK tax laws exemplifies why banks must remain agile and proactive. Banks should not only ensure proper product placement but also consider the tax implications for their clients.
A notable case by the Ombudsman of Swiss Banks in 2019 highlighted that banks could be held liable for not performing adequate tax suitability analyses upon changes in a client's domicile, potentially leading to significant financial and reputational repercussions.
Technological Support from Indigita
To aid financial advisors in these complex scenarios, Indigita has introduced two innovative platforms: "inApp Products" and "inApp Tax". These tools enable a cross-border, multijurisdictional comparison of investment portfolios. Users can enter ISIN codes and select relevant countries to see how each portfolio item fares in terms of both product placement and tax suitability.
The platforms provide a comparative table in seconds, which can be exported for further analysis, ensuring that advisors can swiftly adapt to the changing needs of their clients, safeguarding both the client's interests and the institution's compliance.
Conclusion
The evolving landscape of international finance requires banks and asset managers to be vigilant and adaptable. The complexities involved in a client's change of domicile are significant, but with the right tools and strategies, financial institutions can manage these challenges effectively. As political landscapes shift and client needs evolve, the ability to quickly and accurately reassess asset allocations and tax implications becomes not just beneficial, but essential for maintaining trust and compliance in the financial sector.
About Indigita SA
Indigita SA is a Swiss regulatory (regtech) company headquartered in Geneva, which provides a suite of interactive trainings, digital tools and APIs to support financial institutions and their employees to conduct cross-border business in a safe and compliant way. Indigita is the regtech arm of the BRP Group and combines the industry-leading regulatory knowledge of its mother company BRP Bizzozero & Partners SA and its sister company BRP Tax SA with innovative digital channels. Indigita provides banks and asset managers efficient access to the most complete and up-to-date collection of cross-border rules for more than 190 jurisdictions.
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