Unregulated IFAs (Independent Financial Advisers) and Unauthorized Insurance Companies

January 4th, 2016

Much has been written about unregulated IFAs operating in Spain. In 2012, The European Commission was considering setting up an ombudsman to help expat victims reclaim against these firms and the Spanish regulators -the CNMV (financial investment) and the DGS (insurance) – regularly post warnings about unregistered operators.

The CNMV is particularly proud of its achievements in the supervisory arena. Its website boasts the following: “Spain enjoys a modern, efficient regulatory and surveillance system, but we must continue working to perfect it. Our regulatory and surveillance system is among the most advanced in the world, and the CNMV is determined to maintain its quality.”

Whatever the surveillance system the CNMV is working on to perfect, its methodology has failed to prevent the activities of not just unregulated IFAs but also, unauthorized insurance companies.

Let’s take the example of Old Mutual (former Royal Skandia), a FTSE100 company “overseeing 319.4bn assets under management for more than 16 million customers worldwide (as at 30 September 2015).”

In Spain, Old Mutual operates via the companies Old Mutual International Life Ireland Limited (Dublin) and Old Mutual Wealth Life & Pensions Limited (Southampton), the only group companies authorized by the DGS. On the Costa del Sol, Old Mutual is known for it has been offering a life assurance policy called “Executive Investment Bond” (EIB), a bond that has incidentally lost millions to investors.

Yet for some reason, the EIB is being offered in Spain through IFAs by Old Mutual International Isle of Man Limited, a standalone company registered in the IOM but not ‘passported’ -meaning not registered in regulatory jargon- into Spain to offer any product, whether insurance or financial. And the same applied to its unauthorized predecessor Royal Skandia Life Assurance Limited (based in IOM), which too offered the “Executive Investment Bond”.

For its part, article 4.2 of the 2004 Insurance Supervisory Act states the following:

Insurance contracts and other legal arrangements subject to this law signed or agreed with an unauthorized entity, or an entity whose authorization was revoked, will be null and void. A person that having entered into a contract with it will be under no obligation pay the premium and will have a right to obtain a refund of any paid premium.

Corporate lawyers are always quick to point out that registered entities forming part of a group of companies are autonomous and separate from each other, regardless of whether they share common brand or names. To this extent, Old Mutual Isle of Man (and Royal Skandia Isle Of Man) should have been registered in Spain and where not, all of its contracts could be null and voided by Spanish Courts.