The challenges for fund operators in a post-Brexit world
Richard Day, Chief Operating Officer at Montlake examines how current EU legislation could change after Brexit and the hurdles asset managers will need overcome to get market access
Fund Operator Editor POSTED ON 12/31/2019 3:44:03 PM
Investment management firms are primarily going to lose their Mifid distribution passport and are positioning themselves for a post-Brexit scenario. This is having an impact on managers globally.
Whilst there may have been some initial fears about people’s ability to even run the funds, there is proof of concept where ultimately European regulators are broadly approving non-European based managers that are considered to be prudentially supervised to the same standards and at no point has anyone said that the FCA isn’t up to standard.
I don’t feel that there are any challenges around where investment teams are based and their ability to manage products that is being impacted by Brexit but it is really Mifid passporting as it relates to distribution across Europe that is where the industry has put most of its attention and sees the biggest challenges around people, locations and regulatory licenses.
""European regulators are broadly approving non-European based managers that are considered to be prudentially supervised""
Certainly, the main fund domiciles have said that they will be happy to continue to support UK based investment managers operating pan European funds.
Purely from the perspective of asset manager running investment teams and distribution businesses, distribution is the one area that the industry has really homed in on with the need to provide solutions.
There are the London-based managers who are headquartered here. Also, the many US managers who have chosen to put distribution teams on the ground in Europe have chosen London will also be impacted and the same is true for Asia and Australia.
In terms of how firms are looking to solve this, there are a number of challenges.
The single biggest challenge is that up to now the whole concept of an appointed rep type scenario hasn't existed across the pan-European landscape - so where there is a well-established model for people to come in and rent a FCA distribution license, the same doesn't exist or hasn't existed to date in other domiciles.
"The single biggest challenge is that up to now the whole concept of an appointed rep type scenario hasn't existed across the pan-European landscape"
There are a number of firms who have been looking at this conundrum and looking at ways that they may be able to get around this.
The one that the larger asset managers have gone down the route of is to simply look at boots on the ground and getting themselves a new license within the EU.
This certainly works for a State Street or Blackrock and the larger firms in terms of their licensing but it doesn't necessarily solve the issue that a lot of people who have been doing pan- European distribution jobs are happily settled in London with their families and so the idea of a move to Paris, Frankfurt or even Dublin doesn't necessarily work for the home-life environment.
The clean situation would be to simply move people and place them in Europe and some firms may say that their staff just don’t have a choice and have to do that but for those firms who are more boutique in nature and less mercenary in their approach, they might not want to be that dictatorial in terms of what people do.
It is these types of firms who are looking into opening a rep office or finding a secondary regulatory entity that their staff can operate under when they are doing one level of work and continue to be employed in the UK.
"Firms who are more boutique in nature and less mercenary in their approach, might not want to be that dictatorial in terms of what people do."
There is work being done around this operating model and this is where a lot of firms are going to settle.
With this comes a bit of greyness in terms of how they work and how you supervise what they are doing and ensuring that someone who is based in the UK isn’t selling into Europe on any given day and are only doing this when they are sat in a European office.
There is going to need to be client’s oversight and procedures and processes built around this if we are going to continue supporting people living in the UK and conducting regulated activities particularly in the areas of distribution on a pan-European basis.
The largest asset management firms out there will have gone down the route of getting themselves approved in different jurisdictions to account for this but if you are a boutique asset management firm based outside of Europe, it isn’t that straightforward.
Getting yourself approved in different jurisdictions adds a level of compliance and regulatory burden that they may find too high.
It is these firms who are looking at and grappling with the issue and right now no one who is in this camp has done anything yet because they haven’t needed to but this may need to change.
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