The recent and unexpected outcome of the UK general election has served only to add to the Brexit angst of the asset management community. Investment managers’ choice of post-Brexit positioning will now come under further scrutiny. Coupled with pending regulations, such as MiFID II, means that investment managers now need a clear and demonstrable action plan.
Across the EU, regulations are increasingly forcing European investors to deal solely with EU-regulated structures and entities; one example is Germany’s BaFin prohibiting pension and insurance groups from investing in offshore loan funds, or offshore intermediary vehicles. As the world’s leading fund governance firm, DMS’ unparalleled consultancy and MiFID II solutions allow us to guide our clients through this storm, leaving them to focus solely on managing investments.
We expect this onshore trend to continue with companies looking to relocate their UK operations to a “remain” jurisdiction such as Ireland, Germany, and the Netherlands. There are a multitude of factors driving these decisions, from investor perception, taxation, availability and quality of workforce, through to existing arrangements. The Central Bank of Ireland has been actively engaging with the industry on the topic, stating recently that they will “want to be satisfied that we are authorizing a business or line of business that will be run from Ireland and which we will be effectively supervising” and that they “expect there to be substantive presence”.
Similarly, EU supervisory bodies, referred to as National Competent Authorities (NCAs), have been vocal in outlining their expectations for firms seeking to relocate to their jurisdictions, and have put forward a number of clear principles. The European Securities and Markets Authority (ESMA) has acted along similar lines with the issuance of principles that each of the 27 remaining European National Competent Authorities should observe when assessing applications from non-EU participants to that are wanting to relocate to the EU.
The UK itself is also seeking clarity, with the Financial Conduct Authority recently requesting that 30 of the UK’s largest asset managers provide detailed information about their Brexit contingency plans, including the impact it could have on their capital base. Investment managers with a UK presence must therefore map out the course of action they will take under various Brexit scenarios.
The one clear message here is that there needs to be real substance within a jurisdiction, any delegation arrangements back to the UK will be closely scrutinized; this could be contrary to the expectations of investment managers, who may have thought that an EU presence may be sufficient. Utilizing a non-conflicted, third-party, MiFID-regulated investment management entity, such as that offered by DMS, allows for these substance requirements to be fulfilled while taking into account the complexities of the clients’ requirements.
For investment managers requiring a comprehensive, robust, and future-proof solution, DMS – as the only independent provider to have both a MiFID firm and Manco authorized under AIFMD and UCITS within its European structure – has the infrastructure and market insight to support ever-increasing regulatory requirements.
Jason Poonoosamy will be in our New York office from the 24th to the 28th July, please let him know if you would like to connect regarding our European solutions, including MiFID.