We asked one of our key speakers at the Fund Marketing and Distribution conference, Stéphane Janin (Head of Global Regulatory Development at AXA Investment Managers) about his thoughts on the following topical question.
"How do you think UK funds and managers will cope with adopting EU legislation during the transition period once the UK has no official EU influence?"
“As you are asking me this question on 9 January 2019, i.e. ahead of the vote in the UK Parliament, full uncertainty remains on the future path for Brexit, including between basically 3 options:
1. “Hard Brexit” (UK leaving the EU without any deal and without transition);
2. “Soft Brexit” (UK leaving the EU with a deal accompanied with a transition period until the end of 2020);
3. “Postponement of the Brexit date” (subject to such a request by the UK to the EU and then to the unanimous agreement by the EU 27 Member States).
Your question implies that there will be a transition period and therefore a “soft Brexit” – you are therefore raising the question in the context of an agreement by the UK Parliament on a deal, which is not granted at this stage [9 January 2019].
In your specific hypothesis of a transition period, the situation will be very simple from a pure legal and regulatory perspective for UK funds and managers.
Legally speaking, the existence of a transition period implies that the UK must continue implementing the ‘acquis communautaire’, i.e. the whole legislative and regulatory package adopted at EU level, without any official say on it (as having left the European Parliament and Council). In practice, it means that for instance the FCA will still have to align its regulatory framework on the EU rules in the areas covered by EU legislation. Therefore, UK funds and managers will still have to comply with EU rules as implemented by the FCA – as they do today. Of course, these EU rules might be less influenced by the UK authorities as they will have no official say anymore in the drafting of EU rules, but at least a regulatory level playing field will be ensured between the UK and the EU 27.
In my view, the more interesting case would be in case of “hard Brexit”, or after the transition period in case of “soft Brexit”:
The decisions and behavior of UK managers will depend on the strategy decided by UK authorities vis-à-vis the EU rules – that UK authorities will not have to implement anymore.
On the one hand, UK authorities would have the freedom to make the UK rules diverge from the EU rules, for instance, to enhance the competitiveness of the UK regulatory framework as compared to the EU one, in order to enhance the attractiveness of the UK financial centre to create local activities and jobs.
But on the other hand, such a potential divergence would prevent UK rules to be recognized as “equivalent” as compared to EU ones, and therefore preventing UK-based activities to be passported to the 27 EU.
All in all, it will be after seeing the way the UK authorities set the UK regulatory strategy post-Brexit that UK managers will decide on their long-term business locations, depending on their own business model parameters (e.g. importance of EU-based clients vs. non-EU based clients), by deciding significantly or not to enhance their presence in the UK, in EU 27 countries - or on other continents, if it appears that both UK and EU 27 rules generate too many constraints and associated costs vs. benefits of keeping access to UK and EU 27 clients and developing business there.”
Please note that opinions are those of the professional mentioned in this article and not the views of their employer.
If you’d like to find out more about what the effect of Brexit and how you can ensure you implement successful marketing, distribution and regulatory strategies for your funds, register for the Fund Marketing and Distribution conference here.