Think-tank New City Initiative (NCI) has proposed that the UK adopt a dual regulatory framework for funds, to enable asset managers to continue meeting EU standards if the country loses its passporting rights.
In an opinion paper, it warned of the dangers of fragmentation and protectionism to the asset management and financial services industries after the UK exits the European Union.
NCI said a dual funds regime would also improve competitiveness in the UK funds market, alongside allowing UK fund groups with interests in the EU to continue to comply with European laws.
At the same time, the proposed scheme would allow less EU-focused asset managers to avoid some of the burdens of EU regulation.
The majority of the NCI members polled on the dual funds issue, some 73%, agreed this twin appoach would be in the UK’s best interests.
The NCI has put the dual funds recommendation to the government, urging it to set in motion a detailed plan to outline the regulatory and tax requirements of a dual regime and to have in place a contingency plan for a UK funds regime, should Brexit result in equivalence being denied.
Jamie Carter, deputy chairman of the NCI, said: ‘A dual funds regime would allow UK managers with European Union interests to continue to comply with EU laws and directives and retain favourable access to their EU investors, while simultaneously letting others market to the rest of the world ex EU, and avoid the worst excesses of EU regulation.
Carter also points to the additional benefit of fund managers not having to restructure their businesses to move part of their firms to onshore EU locations, such as Ireland and Luxembourg.
Brexit fear still looms large
The paper cited regulatory arbitrage between the UK and EU as the number one concern among NCI members with 54.5% highlighting it as their biggest post-Brexit worry.
‘Brexit is going to be a significant administrative barrier,’ said Neil Robson, a partner at law firm Katten Muchin Rosenman.
‘Only once this barrier has been overcome can meaningful progress be made in areas such as the creation of a dual fund regime. I am hopeful that the UK government will create a more flexible and nimble fund regime, as this could enable the UK to compete with Luxembourg and Ireland, as well as offshore centres such as the Cayman Islands.’
Other NCI members identified market volatility (27%) and investor outflows and fundraising challenges (18%) as paramount concerns post-Brexit.