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. 
 

Asset management authorisation hub
He also spoke of how, in 2017, the Financial Conduct Authority, the UK regulator, launched the first phase of its new asset management authorisation hub, designed to help new entrants to the market by supporting new firms throughout the authorisation process and afterwards. Further phases were expected to roll out but aspects of this have been put on hold amid the pandemic.

“As we now head out of the [EU] transition period, we urge the FCA to extend this initiative to create a regulatory environment for new asset managers similar to the `Project Innovate’ sandbox environment for fintech and the joint PRA/FCA `New Bank Start-up Unit’,” he said (referring to Prudential Regulation Authority as well as the FCA). 

“The idea behind this is to have an easier and faster process of registration, with a lighter touch regime for start-up firms that are targeting sophisticated institutional investors until they grow to a larger size or start to take on retail customers, at which point they would graduate to the `full’ regulatory environment - like an adolescent becoming an adult,” it said. 

“We believe that greater allowance for proportionality, rather than new rules, is the key. This would promote yet more competition in the financial services space, increase consumer choice and support innovation and entrepreneurialism. Simultaneously, it would enhance the attractiveness of the UK as a jurisdiction for the establishment of financial services and corollary areas,” Illingworth said. 

Asia connections
More work must be done to strengthen fund management sector ties with Asia, NCI said. 

“NCI believes that UK policymakers/regulators should capitalise on the UK funds industry’s opportunity to further cement its presence in APAC, where a number of our members see large growth potential. By developing a UK-own fund brand, to compete with UCITS and AIFs, we can strengthen the global distribution footprint of UK funds in the region and benefit both the UK and Asian economies,” Illingworth said. 

The UK should sign up to at least one or both of the Asia Region Funds Passport (ARFP) or ASEAN Collective Investment Scheme (CIS) to boost its APAC distribution footprint, he continued.

Last year, the think tank created NCI Singapore, to spread its message and work in Asia. Some time ago, this publication wrote about the development of pan-Asian fund markets and how a number of jurisdictions have sought to emulate the perceived success of the UCITS fund model.