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What does Brexit mean for European fund managers?

Asset managers in Europe have their businesses positioned for a ‘no deal’ Brexit, writes Dippy Singh With Brexit looming, European fund managers are continuing to evaluate how the UK’s departure from the trading bloc will affect their operations and portfolios. Ahead of the UK leaving on 31 October, deal no deal, fund managers across continental…


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Asset managers in Europe have their businesses positioned for a ‘no deal’ Brexit, writes Dippy Singh

With Brexit looming, European fund managers are continuing to evaluate how the UK’s departure from the trading bloc will affect their operations and portfolios.

Ahead of the UK leaving on 31 October, deal no deal, fund managers across continental Europe have been thinking strategically. Considerations have included how to passport into the UK when it becomes a ‘third country’, how to manage their UK-based funds, and whether they should reassess their investments.

In reality, it appears many fund managers have been taking steps to tackle these issues since at least last year.

UK’s loss is Europe’s gain

Figures from this March (when the UK was originally meant to leave the EU), showed nearly 300 financial firms had moved or were planning to move some of their business, staff, assets or legal entities from the UK to the EU to prepare for Brexit, with asset managers transferring more than £65bn in funds – with the final tally expected to be considerably higher.

The data, from thinktank New Financial, revealed a number of financial groups had relocated staff from the UK and set up new entities, mainly in Dublin and Luxembourg, as a consequence of Brexit. Credit Suisse, which has reportedly moved about 250 staff.

Speaking to Expert Investor, Credit Suisse said its answer to Brexit involves establishing multiple new locations across Europe – a sign of how Europe will become a more multipolar world after Brexit.

“Credit Suisse is working to maintain access to EU clients and markets by leveraging our existing infrastructure in the event of a no-deal Brexit,” Will Bowen, deputy head of corporate communications explained.

“Discussions with relevant regulators, employees and key stakeholders remain ongoing, but our solution will involve multiple locations, including Madrid, Frankfurt and Luxembourg” he commented.

However, Credit Suisse insisted London will remain a key part of the bank’s footprint even after the UK’s exit from the European Union.

Hanging on

European fund managers may not be in a hurry to exit completely from the UK, due in part to the various contingency plans put forward by regulators this year. For example, in February the European Securities and Markets Authority (ESMA) and European securities regulators agreed a memoranda of understanding (MoU) with the UK’s Financial Conduct Authority in the event of a no-deal Brexit.

The MoU will allow certain activities, including fund manager outsourcing and delegation, to continue to be carried out by UK-based entities on behalf of counterparties based in the EEA.

As a result of these cross-borders agreements, fund managers may feel it makes little sense to completely restructure their UK operations and investment activities – at least for now. Especially if it saves on costs.

French fund manager Amundi, which has around 170 employees in its London-based branch managing circa £30bn of assets, is one firm taking advantage of these temporary cross-border agreements.

In order to continue marketing its EU domiciled funds in the UK, it announced it will use the Temporary Permissions Regime (TPR), which allows European Economic Area (EEA) firms currently passporting into the UK to continue operating in the UK for up to three years after Brexit, while they apply for full authorisation from the UK’s Financial Conduct Authority.

This will enable Amundi to continue to sell its funds in the UK regardless of whether the UK leaves the EU with an agreed deal, or with no deal, it said in a statement earlier this year.

Amundi in the UK is also ensuring that more than 200 fund and sub-funds are notified to the FCA to remain compliant.

For supervisory purposes, the firm said the portfolio management activities conducted by its London branch will be transferred to Amundi UK Ltd, a UK legal entity fully supervised by the FCA. This transfer of staff and all client businesses will be implemented by October 1st 2019, the company stated.

“Amundi London is, and will remain, one of our six global investment hubs, dedicated to global fixed income and emerging markets,” the company said.

“The strategy of Amundi is to maintain its footprint in the UK as we have, regardless of Brexit. All the main activities will remain in the UK including portfolio management, sales and distribution to UK clients.”

Similarly, Allianz Global Investors said it has no plans to alter its UK-based portfolio management or move staff.

“As a global fund manager, with significant operations in both the UK and continental Europe, we are well positioned and well prepared – deal, no deal or further delay – come the end of October. We have no current plans to relocate staff or to change portfolio management processes,” a spokesperson said.

Distribution implications

While temporary cross-border agreements offer some cushion to fund managers, no one knows for certain how third country provisions for the UK will look in the long-term and how this will affect business between the 27 EU member states and the UK.

If the UK loses its EEA status and its right to EU regulatory passporting, commentators have warned that many European-based investors will become increasingly nervous about buying into funds managed in the UK. Indeed, a number of fund managers have already moved billions of euros of EU investor assets from the UK to other territories to alleviate investor concerns.

For example, over the last two years M&G Investments has transferred the non-sterling shares of 25 of its UK-domiciled open-ended investment company (OEIC) funds to UCITS-compliant SICAV funds in its Luxembourg range.

“The aim of the programme was to protect the interests of M&G’s customer base outside the UK as the country continued to negotiate its exit from the European Union,” the fund manager said.

It’s expected more fund managers will follow suit and transfer assets from the UK in an attempt to protect European investors.

According to a KPMG analysis, fund managers across Europe will have plenty to think about and plan for as they try and navigate a new post-Brexit environment.

“Even if firms do not relocate any of their operations (from or to the UK), they will have to navigate contract law, employment law and tax law issues. For example, what will happen to VAT arrangements for EU27 members with operations in the UK? What impact will there be on the process for tax treaty claims?

“Some EU27 members route data via the UK and then on to other destinations, such as the US. How will this work post-Brexit under the EU General Data Protection Regulation, which includes specific extra-territoriality provisions?” the company said.