Asset managers 'could push back on reform' due to Brexit
UK-based asset managers could cite Brexit-related uncertainty when lobbying for delays or changes to forthcoming rules, according to a consumer advocate.
Mick McAteer, a former board member of the Financial Conduct Authority (FCA), voiced concern that the regulator would come under pressure from fund management firms to delay or soften measures emanating from its review of the sector.
McAteer told IPE: “If access to the European market is hit, it would have an impact on the financial sector, and firms would turn to cutting costs. One obvious way to do that is to lobby for deregulation.”
This would be a “false economy”, he argued, as there was still a significant lack of consumer trust and confidence in the financial services sector, and deregulation would undermine any progress made.
The FCA last year published a damning report into the asset management sector, describing competition as “weak”, criticising transparency and proposing new rules regarding value for money.
It has invited responses to the interim report and will publish a follow-up later this year.
In an article for his consumer-focused think-tank, the Financial Inclusion Centre, McAteer wrote last week: “Far-reaching interventions are needed to tackle the embedded conflicts of interests and structural flaws in the [asset management] sector.
“But the asset managers will fight tooth and nail to prevent structural interventions, no doubt arguing that serious reform is not advisable given the potential impact of Brexit on the sector.
“Consumer and civil society groups scored great successes in cleaning up the banking and insurance sectors…. They will now need to turn their attention to the asset management sector and maintain pressure on the regulator in 2017 if the necessary reform is to happen.”
Prime minister Theresa May has vowed to give more details by the end of March of her government’s plans for negotiating the UK’s exit from the European Union.
However, much uncertainty remains regarding aspects such as access to the single market, seen as crucial to the financial services sector.
Francois Barker, partner and head of pensions at Eversheds, said: “I can see asset managers saying Brexit gives another load of uncertainty, so now is not the time for more rules. I can see that is a plausible argument, but whether it would cut the ice with the FCA remains to be seen.”
At the same time as the UK will be negotiating Brexit, Europe-wide directives and regulations will be coming into force.
The FCA is preparing to implement the Markets in Financial Instruments Directive, while the European Markets Infrastructure Regulation – including requirements for pension funds to use central clearing houses for their derivatives trades – is due to be rolled out over the next two years.
The fifth iteration of the UCITS rules for pooled funds is also scheduled for implementation over the next two years.
Barker said the UK was unlikely to back out of any of these existing directives, as it will still be an EU member until exit negotiations are concluded.
“I don’t think we can get rid of everything – politically, that’s very difficult,” he said. “If we do want to be in the club at all, we will have to have some form of [regulatory] equivalence.”
However, if any new rules are to be proposed during the negotiation period, Barker said the government may “soft-pedal”, delaying input or implementation until the UK is out of the EU.