Regulators in the EU and the UK have signed memoranda of understanding (MoUs) in an effort to mitigate the effect on the financial services industry of the UK exiting the bloc without a deal.
The UK’s Financial Conduct Authority (FCA) has signed a “multilateral MoU” with regulators in the remaining 27 EU member states and in the wider European Economic Area to facilitate co-operation and information-sharing across areas of financial services including the asset management industry.
In a statement issued this morning, the European Securities and Markets Authority (ESMA) said the agreement would allow UK-based asset managers to continue to run money for EU entities.
ESMA and the FCA have also finalised an MoU regarding the regulation of credit rating agencies and trade repositories.
ESMA said the MoUs were similar to those governing the relationships between the EU and third-country regulators. They will only come into force if the UK fails to sign off on a withdrawal agreement before it is scheduled to exit the EU on 29 March.
FCA chief executive Andrew Bailey said the MoUs should “minimise the potential for disruption, which we know is particularly important for the investment management sector, credit rating agencies and trade repositories”.
‘A sigh of relief’
Asset management associations expressed relief at the announcement.
The European Fund and Asset Management Association (EFAMA) stated: “Regulatory and supervisory cooperation between ESMA and the UK FCA is crucial and will require substantial resources to be dedicated on both sides.
“Such co-operation should drive mutual efforts to exchange information and data and avoid unintended divergences in the implementation of future regulation between the EU and the UK potentially creating an accidental unlevel playing field.”
EFAMA’s director-general Tanguy van de Werve said clarification over delegation rules was of “paramount importance” to the asset management sector.
Chris Cummings, chief executive of UK asset management trade body the Investment Association, said: “These agreements ensure that delegation of portfolio management, and the necessary exchanges of information needed for the orderly functioning of markets, can continue regardless of the outcome of the Brexit negotiations.
“This is welcome news for millions of savers across Europe who together have some £1.8trn of savings managed by experts in the UK. Asset managers – and critically their clients – will now have the confidence they need that delegation to the UK will continue.”
Patrice Bergé-Vincent, managing director at US-based asset management lobby group ICI Global, said: “During the past two years, global asset managers have taken many steps to protect their ability to serve investors and engage in European capital markets.
“A memorandum of understanding between the FCA and ESMA, and a model for agreements between individual EU regulators and the FCA, would inject additional certainty into this process by helping to preserve fund distribution and investment in the event the UK withdraws from EU without a mutually agreed plan.
“We encourage EU member states to take up ESMA’s effort and work with the FCA to finalise these understandings, so funds can remain focused on serving their investors’ needs.”
Many UK-based investment groups have opened offices in the EU – with Luxembourg and Ireland the preferred destinations – while some, such as M&G and Columbia Threadneedle, have transferred billions from UK funds to vehicles based in the EU.
Pensio Plus flags ‘hard Brexit’ risks
The Belgian pension fund association yesterday wrote to its members to draw their attention to the potential consequences of a non-negotiated “hard Brexit”.
If a pension fund outsourced certain tasks to a UK-based provider, it would need check whether that provider continued to have the necessary “qualifications and legal recognition” after Brexit, Pensio Plus said. This was particularly the case for depositories, reinsurers, and asset managers.
The association recommended that pension funds “meticulously” monitor British counterparty risk and, if necessary, make sure it was partially or completely eliminated.