The impact of the recent Brexit vote in the UK is still being analysed by many international and London based fund managers. The Brexit decision has caused uncertainty in the asset management sector in London, with managers exploring the possibility of relocating to other EU member-states, in a bid to continue operating under the European Passport regime.
While it is premature to predict the full impact the Brexit vote will have on UK fund managers, the next couple of years will likely see them move some staff outside the UK, to avoid being locked out of European fund raising.
Size of UK Market
The UK fund’s industry is by far the largest in Europe – larger than the next two centres combined. Assets under management in the UK is currently over £6.2 Trillion and the UK accounts for 8.4% of total funds under management globally (the second largest centre after the US).
The key concern UK fund managers will have over the next couple of years is whether they can maintain access to the EU – a vast market of over 500 million potential investors – and still the largest single market in the world.
Negotiations between London and Brussels have yet to begin and are expected to take two years after triggering Article 50 of the EU Lisbon Treaty.
Much depends on the form the Brexit will take. Investment managers in the UK are required to have a base in the EU to sell their funds to European investors.
If the UK is able to negotiate a trade deal as a “Third Country” – the Norwegian or Swiss model – then they should be able to maintain access the EU market.
Potential for relocation
In the meantime UK fund managers are faced with uncertainty potentially lasting years.
There is a strong possibility UK fund managers will relocate some of their operations to other EU states. Other fund centres which could attract this business include Frankfurt, Paris, Luxembourg and Dublin.
M&G, Legg Mason, Columbia Threadneedle, Fidelity and T Rowe Price have all outlined plans to move some staff out of London to other EU fund centres.
M&G investments have already announced they are moving a fund management unit to Dublin in the wake of the Brexit vote. Other fund managers will likely follow.
Impact on Fund Governance
Relocation – or even duplication – of funds in new countries will add to fund managers complexity, as they seek to comply with the regulatory requirements of multiple jurisdictions.
Compliance requirements will increase over the next few years and this will represent a substantial challenge for many fund managers.
Fund managers will need to adopt governance solutions which streamline and manage this growing regulatory complexity.
Shane Brett is CEO of GECKO Governance – the fund governance and regulatory oversight solution.