For decades, London was the financial capital of the EU and its direct connection to global financial markets. Yet, an agreement on financial services was largely omitted from the UK–EU trade deal.
The Financial Services sector has been urging the UK and EU to quickly come to an agreement, with a memorandum of understanding said to be expected in March.
While equivalence remains a pipe dream for the UK, both sides have pressed on with their own agenda aimed at reshaping the European fund industry.
AIFMD & Delegation
Global asset managers servicing EU investors will be aware of the ongoing conversations surrounding The Alternative Investment Fund Managers Directive (AIFMD). The consultation closed on the 29th of January with the European Commission’s legal proposals expected a few months after.
The most interesting and concerning segment of the consultation for many is delegation and the framework for alternative investment managers to market products to EU investors. This is increasingly important in the context of Brexit as most AIFMs rely on delegation of portfolio management functions – often to entities outside of the EU, where the AIFMD rules do not apply.
Last year, the European Securities and Markets Authority shared its recommendations to the Commission and argued in favour of imposing limits on the maximum extent of delegation or restricting the functions that can be delegated in the first place.
The industry consensus is that changes to delegation rules could disrupt a model that currently works for both investors and managers. Too much tightening of the delegation rules could limit the ability for non-EU managers to set up sub-funds on AIFM platforms and prevent European institutional investors from accessing non-EU alternative asset managers critical to their investment strategy.
Delegation today appears to be a politically charged question with certain countries keen to capitalise on possible changing rules to develop their burgeoning fund industry. With the consultation likely to be challenged, it will be critical for all market participants to keep an eye on the direction of travel.
UK’s regulatory framework
The UK is also taking steps to protect its status as a leading financial hub. The UK Government recently announced proposals to improve the country’s international competitiveness across financial services, specifically asset management.
Most recently HM Treasury launched a call for input to gather industry views on reform of the UK funds regime. This follows another consultation on taxation of asset holding companies in alternative fund structures due to close on 21 February. With a focus on making the UK an attractive place to do business, expect this agenda clash with the EU’s ambitions in this field.
Regulation is still about a year away. Nevertheless, this will be closely watched in Brussels and the main EU financial centres. It is a unique opportunity for the industry to contribute to shaping the UK (and, indirectly, the EU) market.
Engaging with the policymaking process
For asset management companies, service providers and industry leaders, the array of changes across the UK and the EU represents an opportunity to engage with regulators and policymakers, capitalise on a unique occasion to shape the industry to your competitive advantage; and future-proof your business against external threats.
Hume Brophy’s financial services policy experts – based across London and Brussels but working hand in glove to provide the most comprehensive coverage of key policy developments – are familiar with the issues and the personalities most likely to transform your operating environment.
If you would like to hear more about the issues currently shaping the policy and media agenda and how to best engage with these stakeholders, contact us on UKteam@humebrophy.com