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Five years after the UK vote to separate from the European Union, Brexit continues to keep London asset managers awake at night. As the date for the rule-set overhaul decision approaches, however, there is reason to be calm.
City asset managers have long been concerned about the possibility of preventing London-based portfolios from overseeing EU funds. Concerns grew when the European Commission, the EU’s executive body, launched its long-standing public consultation in October 2020. She asked if the so-called delegation rules – which allow funds into the EU to be managed by executives based in London – needed to be revised.
The consultation ended in January. He asked for advice on whether to make the rules more restrictive, prompting the UK’s biggest funds and trade bodies to warn the Commission to be cautious. After all, it’s a big market.
The EU could easily change it if it wanted to, demanding that more management of EU funds take place within a member state. The argument for doing so is that it would allow easier supervision and bring more money and expertise to the bloc. But it would also be very disruptive for the funds themselves and devastating for London’s financial services industry.
New Financial, a think tank, calculated that € 2.3 billion was managed in the UK on behalf of European investors in September 2021. This represents around 42% of all assets under management in the 28 states. members of the trade bloc. He added that “a similar amount is being managed for asset owners around the world who have traditionally used the UK as a gateway to European markets.”
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Unsurprisingly, the threat of delegation has become more of a concern over the past 10 months, as divergent interpretations of the Brexit deal agreed in December sparked a series of public feuds between EU member states and the Kingdom. -United.
The strained momentum has already delayed formal approval of a limited post-Brexit deal for financial services and killed the last vestiges of hope in the city of increased access to the bloc via equivalence – which would have processed the funds UK based in the same way. than those of the EU in terms of regulation.
Efforts by EU policymakers to move other lucrative aspects of the city to the bloc, such as cleaning, have done little to allay concerns.
Today, however, industry veterans have reason to believe that EU policymakers will not tamper with delegation too much.
“The rhetoric has cooled a bit, at least publicly,” said a senior asset management executive, who declined to comment publicly on the matter while decisions on it are pending. “There is a vocal minority who would like to upset the delegation but they don’t really have broad support.”
“Things seem to be cooling down a bit,” agreed a Brussels-based regulatory adviser who asked to remain anonymous, citing customer privacy concerns. He added that some EU member states, like France, were not pushing for rule changes “aggressively enough”.
“There seems to have been a slight shift based on the discussions that we are seeing from Member State to Member State and Member State to the European Commission,†he said, and noted that he didn’t think more that EU policymakers would change the rules to prevent EU domiciled funds from making investment management decisions in London.
“It will not be about forcing a lot, a lot of people to come to work in the EU and the portfolio managers to move,” said the Brussels adviser. “The discussions are becoming more reasonable.
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A senior lobbyist for a UK fund said he felt “more optimistic” about the Commission’s review after a period of “concern that the French are turning around and trying to steal our business”.
The Brussels-based regulator said a “significant change in delegation modalities” was “in no one’s interest”. “They’re not going to try to do something that doesn’t serve the market, doesn’t serve the investor well,†he said.
The Investment Association, the trade body representing Britain’s £ 8.5 billion asset management industry, told the committee in its response to the consultation that “EU policymakers should be careful when revising delegation rules “and advised the Commission to consider the potential harm of any changes. .
AI Chief Executive Chris Cummings added to this warning in mid-September when he told Members of the UK Parliament that the “principle of delegation is the foundation of investment management” enabling the industry ” to manage assets from all over the world, which contributes to growth â€.
An EU decision to restrict the delegation model “only adds costs to the industry and leads to a sub-optimal outcome for customers as there is more friction introduced,” Cummings said, adding that the Commission risked losing business “to the benefit of the US or emerging parts of the world” if it sought to “try to move small businesses from the UK into the EU”.
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The rule change could also affect funds operating in Europe beyond the UK – if they are managed from New York or Hong Kong, for example.
“At the moment, it’s more politics than good business management,†he told members of the influential British Treasury committee on September 13. “I don’t think the UK government, and indeed other governments that will be affected by such measures, should hesitate to voice their concerns about what is in the best interests of savers and investors.”
But the industry is not yet out of the woods.
While fund managers believe the rationale for keeping decisions in London is starting to resonate in some European circles, the senior asset management executive said the industry was concerned about “the European Parliament’s wild card or more political aspects of the European Commission “seeking to make radical changes to the model anyway.
Sean Tuffy, Head of Business and Regulatory Intelligence at Citigroup, said Financial news that he thought “unlikely” that “the current status quo will last” given that “one of the main drivers of the delegation review is Brexit”.
Delegation is authorized under two separate European regulatory regimes, for alternative investment funds and retail funds. For retail funds, however, the use of the model is controlled by local regulators in member states, which limits the oversight of these activities by EU supervisors. Tuffy expected EU policymakers to seek to fill this loophole.
Yet after years of dismay over this possible Brexit land grab, leaders in at least London don’t have much to wait for clarification. The European Commission’s proposals in this area should be published by December.
A spokesperson for the European Commission declined to comment.
Additional reports by David Ricketts
To contact the author of this story with comments or news, email Lucy McNulty
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