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Brexit would bring ‘massive disruption’ – Investment Association

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Exiting the European Union (EU) would bring “massive disruption” to the UK asset management industry, Guy Sears, interim chief executive at The Investment Association, told a Treasury committee hearing on the economic and financial costs and benefits of UK membership of the EU today.

Sears was joined on the witness panel by John Barrass, deputy chief executive at the Wealth Management Association, and Jiří Król, deputy chief executive at The Alternative Investment Management Association (AIMA).

The panellists were asked for their views on a range of aspects, such as the accountability and transparency of EU rule-making, the cost of compliance and the appropriateness of the EU’s post-financial crisis regulation.

Sears, after apologising for an initial “equivocal” response to questioning about whether it would be better to be in or outside the EU, said there would be “massive” disruption to the UK investment management industry if the UK were to leave the union.

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None of the trade associations are taking an overarching position on the matter, or at least have not yet reached a conclusion, according to their representatives, but they are instead focused on helping their members understand the implications of a potential ‘Brexit’.

Król, for example, said the AIMA would be neutral because of wide-ranging views among its members.

Sears emphasised that the majority of the UK fund management industry’s business was in service provision rather than the manufacture and distribution of products, such as UCITS funds.

He said continued service provision in the EU in the event of an exit would require showing “equivalence” of rules.

To the extent that regulation controls access to a given market, being subject to that regulation without the same means of influencing it would be “less than optimal”, he said.

Sears was perhaps most direct in his assessment of the Capital Markets Union (CMU) project being steered by financial services commissioner Jonathan Hill, saying the shift from a focus on de-risking to growth and productivity was encouraging and that a CMU with these priorities would be “a major opportunity for our industry”.

He said it would reflect the embracing of greater market finance, and the contribution of the asset management industry to economic growth as asset allocators.

Representing the hedge fund industry association AIMA, Król was also positive about the CMU, saying strong capital markets had a positive effect on growth, and promoted transparency and discipline among companies using the capital markets.

The CMU, he said, has the “potential to deliver huge benefits to the UK and the EU”.

He stressed the popularity of UCITS funds among institutional investors, and warned against the risk of financial services regulation becoming less open and thereby making it more expensive to run UCITS funds.

On the topic of the post-crisis regulation introduced by the EU, Sears said the benefits of the regulation continued to outweigh the burdens, citing the ability to “passport”.

And “to the extent they are burdens”, these are also being looked at by the cumulative impact review of EU legislation the Commission has launched, added Sears.

He also appeared to caution against seeing regulatory compliance demands as only stemming from the EU, noting that the UK has in some matters gone further than the EU and that it “has ensured that it has intervened where necessary”.

Król said London held “a unique magic” for the hedge fund industry but that it was difficult to pin down how much of this was linked to having access to the EU market or to the UK domestic regulatory framework.

UK prime minister David Cameron has promised an in/out referendum on the UK’s membership of the EU by the end of 2017 and is reportedly targeting a vote in June subject to a deal on new terms of membership for the UK being agreed at a European Council meeting next month.

Sears became interim head of the IA in October, replacing Daniel Godfrey, who stepped down after reports that large IA members were planning to leave the association.  

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