TUPE in Financial Services


By Claire Holland

In a recent case in the European Court of Justice ("ECJ"), it was found that a transfer of clients' investments resulted in a transfer of an undertaking under the Acquired Rights Directive (2001/23/EC) ("ARD").

In Dodič v Banka Koper and Alta Invest, Banka Koper, a Slovenian bank ceased performing investment activities so it was no longer able to be a stock exchange intermediary. As such, it transferred all documentation relating to its investment services and activities to another intermediary, Alta Invest. Banka Kopa updated its clients that it was no longer performing investment activities and that they could transfer to Alta Invest for free, following which 91% of the clients transferred.

Subsequently, the bank was de-authorised by the stock exchange and terminated the employment of its stockbrokers. Mr Dodič, one of the bank’s stockbrokers, contested his dismissal, arguing that Banka Koper had transferred its investment management activities to Alta Invest under the ARD. The question as to whether there was a transfer of an undertaking under the ARD was referred to the ECJ.

The ECJ held that the transfer of financial instruments and other client assets could give rise to the transfer of an undertaking under the ARD. The key question was whether the economic entity retained its identity post-transfer. The clients' freedom to choose the identity of the new intermediary did not prevent there being a transfer of an undertaking. However, the ECJ remitted the key question of whether there was a transfer of an undertaking back to the national court.

Although the ECJ did not come to a decision on whether there was a transfer of an undertaking here, this case does illustrate how TUPE could apply to the transfer of clients in the financial services sector. However, even though the ECJ suggested that the number of clients that transferred was not determinative of the position, it would be hard to imagine TUPE applying to a situation where clients exercised their choice to transfer their accounts to a variety of intermediaries, essentially "fragmenting" the service.

It's also worth bearing in mind other areas where TUPE could apply to the financial services sector, in particular where a client engages an IFA through their own personal service company (PSC). If the client were to decide to terminate this service and engage another IFA through their PSC or take the same or similar work in-house, then there may be a service provision change and TUPE could apply. In most cases, the reason for changing the way in which the services are provided is dissatisfaction with the services themselves so changing the arrangement in this way may not achieve the outcome the client necessarily wants. It's also worth remembering that with the changes to IR35 in the private sector next year, financial services firms should be reviewing these types of PSC engagements in any event as well as being aware of the potential TUPE implications.

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