The impact of Brexit on the UK’s sizeable wealth management industry continues to remain very uncertain.
The industry manages around £2.7tn1 (€3.1tn) for overseas clients and more than half of the overseas client money managed from the UK is managed on behalf of European clients.
Many Investment Association members have longstanding fund ranges set up in Dublin and Luxembourg which they use to market their asset management services throughout Europe. In particular there is £105bn1 (€119.9bn) of UK investors’ money in overseas funds that could potentially be affected should the ability to passport funds be lost as part of the Brexit negotiations.
Passporting rules allow EU finance companies to sell their services across the EU with a local licence, rather than getting a licence to operate in each member country where it does business. Because of the uncertainty over Brexit, many companies have been setting up regulated subsidiaries in cities such as Dublin, Paris, Frankfurt and Amsterdam to hedge against the risk of disruption to their business.
Brexit also has the potential to further increase levels of M&A activity across Europe. For instance we are seeing an increasing number of UK-based firms seeking acquisition targets in Ireland that will allow them access to the common market post Brexit, while a number of firms have already relocated operations from the UK to Ireland and many others will attempt to establish an Irish base.
On the other foot, we are seeing investors in France trying to strengthen their continental presence and looking for acquisitions across the eurozone in response to Brexit.
UK Prime Minister Theresa May has ruled out keeping financial passporting with the EU after Brexit, stating that the government is not looking for passporting because “it understands that it is intrinsic to the single market, which we would no longer be a member of”.
However, she has signalled that the government still wants to strike a new deal that would allow UK companies to sell services across the EU. Particular confusion continues to surround how Brexit will affect UK compliance with MiFID II as countries which are not part of the EU – but which want to sell their products and services in the area – must open a branch within EU borders operating in equivalence with European regulatory standards.
1: Financial Conduct Authority – Asset Management Market Study June 17