Majority of asset managers preparing for ‘hard Brexit’

According to a report in the Financial Times the study by trading network Liquidnet found that almost two thirds of asset managers are readying themselves for a ‘hard Brexit’. Liquidnet also found that the vast majority (83%) of respondents to its study of asset managers had response plans for Brexit, and nearly half had already put those plans into action.

Meanwhile 87% of managers were planning to keep trading desks in their current location, at least for the time being.

Asset management expert Elizabeth Budd of Pinsent Masons, the law firm behind Out-Law.com, said the study confirmed the market perception.

“People are now looking at crashing out completely, and also looking at the better-case scenario where we’re accepted as a third country and able to access a patchwork of arrangements which cover the investment management industry,” Budd said.

“Some are well advanced, and some seem to be just beginning to think seriously about Brexit now.”

Budd said while asset managers were generally now starting to focus on Brexit they had not always looked fully at the impact on their business within the EU.

“What asset managers haven’t necessarily appreciated is that if they need to get themselves authorised in an EU jurisdiction, how long it takes,” she said. “Many asset managers do have customers who are based in the EU and how they’re going to serve them going forward is still not entirely clear.”

In June representatives of the Central Bank of Ireland urged firms wanting to be authorised in Ireland to apply straight away, warning that those who did not would struggle to have a licence approved by the time the UK left the EU in March 2019.

Budd said one reason why some asset managers could have delayed their Brexit planning was that they had been dealing with a wave of regulation in the past 18 months.

“The industry has also had to handle a lot of regulatory change,” she said. “Asset managers have had a lot to do with implementing MiFID II and GDPR, addressing the Asset Management Market Study outcomes, and the Senior Managers and Certification Regime (SM&CR) coming in.”

The second iteration of the EU’s Markets in Financial Instruments Directive (MiFID) came into force in January this year, while the General Data Protection Regulation (GDPR) was implemented in late May.

The Financial Conduct Authority published its final report into its review of the asset management market in June 2017, proposing a number of governance and technical changes to its regulation of the sector. Meanwhile the SM&CR, which is designed to hold senior individuals to account, is being extended to cover all authorised financial firms from a narrower remit of regulating investment banks.