Fieldfisher hosted a seminar addressing the likely impact of the 23 June EU Referendum on UK based asset managers at BNP Paribas' offices on 11 January. The seminar was organised in association with Elvinger Hoss Prussen and A&L Goodbody.
A link to the PowerPoint slides used for the seminar is here.
• Creating your own certainties
Great interest in this topic because it is one which has perhaps the greatest level of uncertainty compared with other current legal and market challenges.
Asset managers likely now need to plan on the worst case scenario basis in order to create their own certainties.
• No one size fits all solution
Each business needs to consider its own circumstances – there is no "one size fits all" solution.
From the legal and regulatory perspective (leaving aside the political and economic debates), there are three main areas for asset managers to consider:
- passporting – do you need them and will you miss them?
From the asset manager's viewpoint, there is very low outbound passporting of UCITS from the UK but there is an issue with the outbound use of MiFID passports. Firms may need to consider:
- establishing a new EU based MiFID firm;
- servicing some portfolio management mandates from an EU based management company; or
- whether a third country MiFID passporting arrangement might work if and when this is introduced under MiFID II/MiFIR
- third country equivalence regimes:
Although there is much talk of equivalence, put simply, these do not exist generally for financial services businesses.
Of those that currently do, regarding EMIR and CRAs, the experience to date has not been entirely straightforward. The process for obtaining equivalence is quite protracted and detailed, and come with variances in the equivalence criteria. Furthermore, even if obtained, equivalence decisions can be withdrawn. So this might not be a reliable and durable basis on which to rely.
If there could be some permanence about the arrangements and if the equivalence concept could be broadened out, it might become a more workable option.
Ideally, there would be a wider open mindedness on equivalence of outcome rather than an assessment by ESMA on a line by line equivalence of specific EU regulatory requirements. Such an evolvement of relevant equivalence regimes would fit with the increasingly recognised need to acknowledge that firms are international and there are variances of approach to regulation globally. This might be the basis for making an argument for a workable and durable equivalence regime and might be an item to add to the Brexit negotiator's wish list, but we cannot be assured that it will be achieved.
A key area for focus, which is likely to be achievable, concerns delegation arrangements.
The most useful and promising route is to arrange matters so that product and services for the EU marketplace is established in an EU jurisdiction, but then there is effective delegation back to the UK of investment management etc.
Many UK based asset managers are already utilising this model and it would be an evolution of that existing model post Brexit.
• How much can you still do in the UK?
The key task is to consider not just how much activity can still be conducted in the UK but also from the relevant European countries' domicile – most likely Luxembourg and Dublin, how much needs to be carried on and supervised from that EU jurisdiction.
Whilst Luxembourg or Dublin ManCos cannot become letterboxes, they could arguably be small village post offices. The question is what is sufficient by way of the experience and supervision abilities and how that can best be resourced. Detailed advice needs to be sought in Luxembourg or Dublin on their respective regulator's expectations.
• What is the future for UK authorised funds?
UK authorised fund ranges should logically still be offered to UK investors. There are however proposals for further gold plating which might arise from the FCA's Asset Management Market Review. These proposals might have the unfortunate result of encouraging firms to try and sell in more of their Luxembourg and Dublin funds into the UK. Indeed, this might be in an asset manager's interests in any event so that it focuses on a single fund domicile hub.
• Orderly transition
Whatever package of measures forms the solution which suits a particular asset manager, it is important that there is an orderly transition to the new arrangements.
For some asset management businesses, the before Brexit and after Brexit picture will not be very different, subject to reviewing carefully the delegation arrangements and the strength of the ManCo arrangements. For others, there will be more major restructuring to be undertaken, particularly in relation to how best to run segregated mandates for EU based investors.
For further information, please do not hesitate to contact:
Kirstene Baillie, Partner, Fieldfisher LLP