In 7 months (almost to the day) it will be the 29th of March 2019. Not far off, is it? And so, reactions to a Brexit and asset management fallout have been gaining momentum in the lead-up to this infamous date on our calendars. Naturally, asset managers are on the defence and gearing up for a ‘Brexageddon’ – but to what extent are firms prepared?
Discover how businesses are behaving with a likely hard Brexit looming on the horizon.
Here Are the Hard Brexit Facts
Last week, Brexit talks continued between Brussels and London to negotiate a deal, which has increased industry-wide uncertainty. Nevertheless, Edgars Rinkevics, Latvia’s Foreign Minister, claimed there is a 50% chance that an amicable agreement isn’t likely to be reached by the March deadline. We know what you’re thinking: a 50/50 outcome isn’t definitive intel to work with – but it is plenty to spark a spate of contingency planning.
In a recent study conducted by global institutional trading network Liquidnet, there seems to be an equally mixed reaction to a hard Brexit and asset management future.
55% predict a softer Brexit decision will be made, whereas 17% are ready and raring to go if it’s a hard Brexit
The following statistics were taken from a sample of 29 hedge fund and asset managers, who collectively manage €14.1 trillion worth of assets:
- 83% have an idea about how to proceed
- 63% think their business won’t incur additional costs
- 59% are preparing for a hard Brexit decision
- 59% are developing a hard Brexit strategy
- 49% have put their plan into action
- 31% are reviewing their potential plans
- 17% remain unsure of what they intend to do
And then there is a substantial one third of industry leaders who feel that a Brexit and asset management status quo will remain intact. But is it realistic to anticipate that nothing will change?
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What a No Brexit Deal Means
Currently, UK-based firms have been operating with passporting rights to connect to the EU single market. This permits asset managers to sell their services within the EU market, without any regulatory restrictions getting in the way. But, if there is a no Brexit deal by the end of March 2019, firms will need to either set-up subsidiaries in the EU or apply for a licence to keep selling to EU clients.
Nevertheless, it’s worth mentioning that passporting rights will still be valid for 3 years in the event of a no Brexit deal. There are also exemptions for non-UK firms to access UK markets, as outlined in global law firm Shearman & Stirling LLP’s publication: MiFID II: Access to EU Markets for Third Country Investment Firms: “…national exemptions may also be available for firms operating on a crossborder basis, such as the “overseas persons” exclusion available under the UK regulatory regime for firms not operating from a permanent place of business in the UK.”
Regarding hard Brexit and asset management relations specifically, there are client-specific and ‘temporary permissions’ that will be taken into consideration too. Businesses can also take advantage of delegation rules between two different countries. For example, asset management services which are delegated to UK firms can be outsourced if the fund is registered in Europe, such as Luxembourg.
Let’s hear from Brexit and asset management expert Elizabeth Budd, courtesy of Out-Law.com, who states: “People are now looking at crashing out completely, and also looking at the better-case scenario where we’re accepted as a third country and able to access a patchwork of arrangements which cover the investment management industry.”
Ultimately, what else can asset managers do but be prepared and keep an eye on the countdown to a soft or hard Brexit?
Be a part of the Brexit debate at our Regulations & Compliance conference in September, featuring the keynote panel ‘Future Proofing for Brexit – Minimizing the Business Impact of Impending Rulings’. Find out more here.