The prospect of UK-based fund managers no longer being able to run money from Dublin or Luxembourg-domiciled portfolios post-Brexit has been labelled "deeply worrying" by asset managers.
The Investment Association's (IA) annual survey of fund firms found concerns over retaining the right to delegate management of funds to UK-based personnel have become the industry's main area of concern regarding the UK's Brexit negotiations.
Around £900bn is managed in the UK on behalf of fund ranges in Dublin and Luxembourg, according to the IA. It said that retaining this 'delegation arrangement' would be "key to maintaining the UK's position in a post-Brexit world".
Asset managers have been bulking up back office representation in continental Europe ever since the UK's vote to leave the EU last year. But few took seriously the possibility that the EU might seek to tighten delegation rules prior to the publication of an 'opinion' briefing from the European Securities and Markets Authority (Esma) in July.
Esma claimed that national authorities should closely scrutinise situations where firms – even smaller businesses – do not “dedicate at least three locally based full-time employees (including time commitments at both senior management and staff level) to the performance of portfolio management, and/or risk-management functions, and/or monitoring of delegates”.
One anonymous respondent to the IA's survey said contemplating such a change was beyond the pale for UK-based asset managers.
"To even imagine a world where we could not delegate asset management activity is deeply worrying. Safeguarding delegation has to be the government's key priority for the asset management industry during the Brexit negotiations," the respondent said.
Esma's opinion has not yet been echoed by other European regulators, and many industry observers still consider changes to delegation rules to be improbable. The IA also suggested that any such measures - would likely have to be extended to other countries outside the EU.
"Delegation of portfolio management activity to countries outside of Europe, notably the US, is currently widely undertaken," said the trade body.
"IA members generally felt that it would be difficult to justify a change that affected the UK but was not extended to the US and Asia. In the event that delegation of front line portfolio management should be significantly impacted by future EU regulatory changes, it could clearly have a major impact on the activity of the asset management industry in the UK."