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Fund managers expected to escape no-deal Brexit nightmare

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UK-based fund managers are likely to avoid any heavy impacts should the country crash out of the European Union without securing a deal in a month’s time, according to credit rating agencies.

Fitch, which tracks the viability of companies through analysis of their debt, structure and operating environment, is the latest to announce its relatively positive view on the fund management sector.

In a note this week, it said the “rating watch negative” assessment it had applied to the UK on 21 February did not imply an immediate threat to the ratings of the fund management sector, referred to as “non-bank financial institutions” (NBFIs).

“A one-notch sovereign downgrade would not, in itself, trigger issuer downgrades,” Fitch said. “And there is no automatic sovereign cap under Fitch’s NBFI rating criteria.”

However, it said the potential for companies to default in the long term might rise, as might the cost of their access to funding, but this was based on individual cases rather than to be taken as a blanket statement for the industry.

The statement followed one made by Moody’s earlier in the month, which said the industry had received a shot in the arm from the memoranda of understanding (MoUs) signed by financial regulators in the UK and EU to allow the sector to function normally, even in the event of a no deal. 

Moody’s said the MoUs were “credit positive” for asset managers. 

This week, Fitch said the highest-rated UK NBFI was Schroders, which has an A+ rating, with all others below the A category, unless support-driven from higher-rated parent companies. 

The rating agency said that, where outlooks were currently negative (Provident Financial at BBB- and International Personal Finance at BB), this was for individual reasons not specifically linked to Brexit.

Regulator publishes ‘near-final’ rules

The Financial Conduct Authority (FCA) this morning presented “near-final” rules and guidance that would apply to asset managers, pension providers and other financial services firms if the UK failed to secure a withdrawal agreement with the EU by 29 March.

Nausicaa Delfas, FCA

Nausicaa Delfas, executive director of international, FCA

Nausicaa Delfas, executive director of international at the UK regulator, said: “The FCA has been preparing for a range of scenarios, including the possibility that the UK leaves the EU in March 2019 without an implementation period.

“The documents published today are a significant milestone in this work: they ensure that there is a functioning regulatory regime from day one, and that firms are clear as to the requirements they need to meet by end-March 2019 and beyond, so they can continue to meet the needs of their customers.”

The guidance stated that the FCA above all expected “fair treatment of customers, irrespective of where they are based”. 

“In many cases, it would be a poor outcome for the client for you simply to stop servicing them, for example for you to withhold payments to consumers to which they are entitled,” the regulator said.

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