Britain’s June 23 vote to leave the EU has raised concerns over its potential impact on fund distribution in the region, but many feel London is likely to remain the best place for asset managers to put a European base. However, the benefits seem less clear-cut for wealth managers.
A key issue is the Markets In Financial Instruments Directive 2 (Mifid 2), which will govern the provision of investment services into EU countries from January 3, 2018.
Non-EU businesses operating in the UK with an institutional client base are unlikely to see any impact from this, noted Leonard Ng, co-head of the regulatory practice in London at Sidley Austin. That’s because even once Britain has left the EU, it is likely to retain cross-border access to institutional clients based on the concept of equivalence.
This means that if a country’s laws have "equivalent effect" to those under Mifid 2, businesses in that country will be able to provide services to professional clients anywhere in the EU through a simple registration process with the European Securities and Markets Authority.
“And all this assumes that the UK government isn’t able to negotiate some other form of access anyway,” said Ng. “We know access to the European market is one of the top priorities for [UK prime minister] Theresa May’s government.
“The long and the short of it is that I don’t see Asian managers suddenly choosing to set up in [common fund domiciles] Dublin or Luxembourg rather than London,” he added. “Despite what you might gain through the passport if you were to set up elsewhere as future-proofing, you would then lose London’s infrastructure, people, investors, etcetera.”
Moreover, it is also the case that Brexit will not affect non-EU managers in respect of the Alternative Investment Fund Managers Directive, at least for the time being, because they tend to use individual countries' national private placement regimes for distributing products.
Hence Sidley’s advice to clients is currently not to consider setting up somewhere other than London, said Ng, “because you would lose a lot more than you would gain”. In fact, it’s unlikely to ever be worth setting up shop somewhere else in Europe, given the likely equivalence of regulations, he added.
But it’s a different matter for wealth managers, said Ng, because they may want retail market access. “If I were a traditional Asian bank looking to service retail and institutional clients, I think I would be saying: ‘Hold on, if we expand in London, will we have the kind of access to the European client base we are trying to reach?’”
There is no guarantee that wealth management clients would be treated as professional clients, added Ng. “So to maximise your client base, you might consider a base in the EU itself.”
Still, Singaporean bank DBS has placed its confidence in the UK capital, having announced the opening of a wealth management office in London earlier this month.
In a speech just prior to the announcement, DBS chief executive Piyush Gupta was quoted as saying he believed that London’s long-term future as the main financial hub in Europe and as one of the key global banking centres, was secure.
Be that as it may, wealth managers looking to set up in Europe now appear to have a trickier choice on their hands.