Brexit…prepare for the worst and hope for the best

TAM Asset Management provides an overview.

We await with bated breath, the lastminute negotiations between the UK and Europe as to how, if, and by what means, business in the Eurozone may be conducted with counterparties from the UK. The bizarre, no-one really knows situation, has resulted in multiple statements from the UK regulator and commentators.

Olivier Fines, head of advocacy for EMEA at the CFA Institute: “In the case of a no-deal Brexit and no regime of equivalence or memorandum of understanding in place between regulators, by definition, the passports under MIFID, UCITS or AIFMD would cease to operate. This would immediately have two sorts of consequences, UK-based investment funds (Oeics, trusts) would no longer be able to be recognised and marketed into the EU. Second, EU-domiciled funds could no longer delegate investment management to UKbased asset managers. This is what is at stake.”

Confidence in a solution that allows equivalency to some degree is meekly anticipated, but in what form and how will it affect the financial landscape is murky. Clarity is required and I know that FEIFA is on top of its information to members. It’s difficult to solve a problem if you don’t have the question? The extent of the problems impact is still not obvious; however, the solution is as clear as a well-cut diamond. Prepare for the worst and hope for the best!

Since the early 80’s regulation has become an integral part of working in the financial sector, with legislation and guidance abundantly introduced and reinforced. Regulation by stringent and diligent authorities on the one hand shows customers that they are treated fairly, and trading operates within important market rules. European regulatory development can also add a strain to existing business relationships. Brexit is not the only significant change. MiFID II was rolled out to further protect trading practices and client’s interests and increase the scope of transparency. This is the set of guidelines European regulators are using to govern companies through regulatory change. Little interest has been taken by the regulators to check implementation yet. This will follow and should not be underestimated. MiFID has some interesting nuances and opens new areas in which advisers can delve (ESG for one) and professionalises the market further. Brexit could on the other hand turn out to be a nasty wake up call for those thinking “equivalency” is nailed on. Recently we hear of bank accounts in the UK for UK expats in Europe being withdrawn…that’s drastic and smacks of preparing for the worst and hoping for the best!

If there is indeed a hard Brexit it creates the very real possibility that:

  • Advisers in the UK may not be able to maintain their relationship with EU clients (other than when they visit the UK).
  • DFMs in theUKmay not beableto use passporting rights to manage EU client assets.
  • And, hot off the press….UK bank accounts are withdrawn for expatriates in Europe. The financial landscape is changing…. MIFiD II is interesting, Brexit could be a shocker.

For further information contact Tom Worthington – tom.worthington@tameurope.com or tel: +34 (0)688 988 686.

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