Alternative fund managers in the UK are concerned the loss of passporting rights in the wake of the Brexit vote will ramp up in costs for investors.
Passporting rights, which come under the Alternative Investment Fund Managers Directive (AIFMD), allow fund managers to market products across Europe.
Tim Thornton, chief operating officer of fund services at administration firm MUFG Investor Services, said the loss of these rights is one of the main concerns for alternative fund managers.
He said there is a risk investors could end up paying the price for the Brexit fall-out, because it could lead to a large scale overhaul of the UK’s entire fund management operations.
It is likely the European Securities and Markets Authority will take a tougher line on passporting, pushing the UK further down the queue, Mr Thornton suggested.
Any gap in passporting rights could create significant upheaval and high costs. Tim Thornton“Any gap in passporting rights could create significant upheaval and high costs for re-routing and restructuring funds,” he said.
“It would also raise questions for existing investors around ongoing marketing, and parallel vehicles might need to be established.”
Mr Thornton said a sensible compromise is necessary to prevent the industry fragmenting and to stop investors from bearing the costs.
While it is not yet clear if the UK will keep its existing AIFMD rights, or will have to apply through the equivalency process, he said the latter scenario is far more likely.
“Given the regulatory regime in the UK already matches that of the EU, the process of bringing forward the approval of an AIFMD third-country passport should be relatively straightforward.”
If the UK does lose its passporting rights, he said the impact on the rest of Europe is “potentially disadvantageous”, pointing out on one hand, it could encourage mangers to move their European operations to other jurisdictions, which would benefit those locations.
“On the other hand, if a fund’s primary investor base is the UK, we could see those products re-domiciled to the UK and become unavailable to European investors.”
Prior to the EU referendum, experts stated passporting would be the biggest loss to UK financial services firms if the UK pushed to roll back any EU-wide regulations already in place.
However, the Financial Conduct Authority’s new chief executive Andrew Bailey responded Brexit will not necessarily lead to de-regulation, stating: “This [Brexit] is not going to lead to a bonfire of regulation, what will come out critically depends on the agreement government reaches.”
katherine.denham@ft.com
