UK asset managers weighing Brexit options

Asset managers are growing increasingly frustrated by the lack of progress over Brexit negotiations.

UK asset managers have been warned that they should file their regulatory authorisation applications with the relevant EU bodies by no later than the middle of 2018 if they want to passport into the Single Market once Brexit completes. This notice was issued by European regulators as they acknowledged that there could be delays to authorisation approvals if submissions are left until late in the day by managers, something which could see UK firms denied access to their EU clients.

While the UK and EU have negotiated a conditional albeit highly tentative agreement outlining the terms of the transitional arrangement, EU regulators have underlined that a no-deal is still a possibility. Other EU regulators have expressed very little sympathy towards signing a mutual recognition or equivalence deal with the UK, pushing instead for a framework modelled on the EU-Canada Comprehensive Economic and Trade Agreement (CETA), which noticeably excludes financial services.

A no-deal or CETA-like outcome would force financial services’ providers in the UK and EU to acquire licenses in both respective jurisdictions in order to continue operating. Given the flimsiness of the transitional arrangement, most firms are still working on the basis that March 2019 is the final cut-off point. One asset manager said that even if the transitional period materialised, organisations were still none the wiser about Brexit, adding they would simply be working to a 2020 deadline as opposed to one set in 2019. 

Some firms are also becoming deeply flustered about whether ESMA will introduce limitations on delegation and reverse solicitation as part of its review into the AIFMD, a result which could force firms to increase their substance inside the EU at great cost. Steven Maijoor, chair at ESMA, speaking in March 2018, sought to assure the industry that the regulator was not looking to undermine the delegation model, but rather counteract the risk of letterbox entities developing in some markets.

ESMA also warned member states that a regulatory race to the bottom to win business from the UK will not be accepted. That has not prevented EU regulators from advertising for business. France’s AMF (Autorite des Marches Financiers) – sent letters to UK asset managers asking them about their Brexit preparations once passporting rights are lost.  The AMF said it was willing to assist asset managers with their continued compliance efforts for any activities they have in France.

While the transitional arrangement is a minor improvement on a cliff-edge Brexit, asset managers remain stuck in regulatory limbo. The point of no return for obtaining a license by March 2019 is fast approaching for asset managers, while uncertainty about AIFMD’s future is not helping matters. Experts are therefore predicting the next few months will see a pick-up in Brexit contingency planning.