Fund Management

UK Needs New Fund Model For Post-Brexit World, Must Deepen Asia Links - NCI

Tom Burroughes, Group Editor, 23 December 2020

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The think tank has set out a number of proposals and ideas on how to keep London's fund management sector internationally competitive following Brexit, given that the UK's ability to tap into EU fund markets will change.

A UK-based wealth and asset management think tank has reiterated its call for a new UK fund structure to rival those registered in the European Union for a post-Brexit world; it called for more efforts to deepen Asian trade links. 

New City Initiative, which comprises 46 asset management firms from the UK and continental Europe, managing approximately £500 billion ($668 billion), set out a number of ideas that policymakers should adopt to promote London’s financial sector.

At present, structures such as the European Union’s UCITS regime and its Alternative Investment Funds model, are established investment industry features. UCITS funds can be bought and sold across national borders without separate local registrations. Following the UK’s departure from the European Union, it needs to reconsider how it taps into international fund markets. 

“NCI is calling for the development of a new UK fund structure that could rival UCITS and AIFs, while decentralising fund management in the country and encouraging regional growth,” Toby Illingworth, executive director at New City Initiative, said in a report. “As the UK government works towards economic recovery and seeks to `level up’ prosperity and opportunity across the country, NCI is advocating the development of a bespoke UK fund structure that could facilitate the on-shoring of more asset servicing roles that have traditionally been based in Ireland and Luxembourg, many of which do not necessarily need to be carried out in London.”

Illingworth said that a new fund structure would give retail and institutional investors more choice and encourage competition. 

As reported earlier this year, a study by NCI says that the UK should make use of the Mutual Recognition of Funds scheme operated in Hong Kong, and regulators should examine other mutual recognition programmes in other markets, such as those of mainland China. The UK should also sign at least one or both of the Asia Region Funds Passport (ARFP) or ASEAN Collective Investment Scheme (CIS) systems.

The think tank said that a number of steps must be taken to smooth out any speed bumps as the UK moves out of the EU’s regulatory orbit.

“Although fund managers are confident that existing distribution channels will not be disrupted after the end of the transition period, there are some more longer-term concerns about the ease with which investment firms will be able to sell into the EU,” Illingworth said. 

“Any attempt to impose additional barriers around delegation is likely to frustrate third country asset managers - including those located in the UK post-Brexit, as it could force them to increase their operations and headcount inside the EU at significant cost. In the past, there have been attempts by some member states to restrict delegation, but these efforts came to nothing, owing to effective lobbying by industry groups and representatives from onshore fund domiciles such as Ireland and Luxembourg,” he continued. 

Illingworth said attempts to roll back on delegation by European policymakers could potentially accelerate in the next 18 to 24 months. 
 

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