Although there are opinions by the yard as to what Brexit will mean – whether for financial services or otherwise – it is essentially nothing more than speculation on what might be – however educated or well informed. In the UK there was life before passporting and, believe it or not, life would continue if
Although there are opinions by the yard as to what Brexit will mean – whether for financial services or otherwise – it is essentially nothing more than speculation on what might be – however educated or well informed. In the UK there was life before passporting and, believe it or not, life would continue if passporting were to come to an end.
Theresa May’s January speech at Lancaster House did give comfort to financial services firms looking for one, which was that the City of London would not be required to make cliff-edge changes and that any changes would allow for a suitable transitional period for change; and, let’s face it, asset management firms have had to adjust to many regulatory changes over recent years and they have shown a resilience and ability to weather many of the political and regulatory storms. After all, isn’t that what stress testing is all about?
Perhaps of more significance to wealth managers and asset managers in the face of Brexit is the publication of the interim report on the FCA market study on Asset Management (MS15/2.2). One may wonder if it provides the product development teams at Wealth Managers, who are facing the uncertainties of Brexit, a real opportunity to design and present a disruptor model that might grab the attention of investors anywhere in the world and cause them to beat a path to the door of that UK investment manager
One of the problems with regulation in asset management has been the lobbyists acting on behalf of European asset management to erode the dominance of the City of London. Brexit gives the City an opportunity to look at the regulatory model again and make it fit for the 21st century by transforming the way that it serves the interests of the City of London and its investors. I have already spoken about the futility of speculating on something for which there is no precedent. Is there something that firms should be thinking about in the cold hard light of day that would create opportunities whatever Brexit looks like or means?
MS 15/2.2, in my view, gives some very firm indications on the direction of travel that are worth considering and which would apply regardless of the form Brexit takes.
For specialists looking to increase distribution for a product that would have investors beating a path to their door, here is what I think that product would need to look like to be consistent with what the FCA appears to have in mind:
For product development this is undoubtedly a tall order but, if the FCA proposals are anything to go by, this is the general direction of travel regardless of Brexit – and whatever form Brexit finally takes, such a product is likely to meet the requirements of MiFID II and PRIIP KIID disclosures without too much effort. I mentioned digitalisation earlier and one way of meeting these requirements would of course be a heavy investment in technology. The manager would be directly responsible for controlling the impact of slippage and other factors on their own bottom line rather than being able to lose their impact by charges against the client’s assets – and information technology would be at the heart of driving through that change.
With the development of concepts such as the robo-adviser, asset managers are already beginning to invest heavily in technology to reduce costs and risks. Modern technology tools can range from cloud-based, web-based or platform-based solutions. Asset managers cannot afford to ignore the operational efficiencies that these can deliver, enabling a much better relationship with their clients – better access, comparable costing and improved reporting all facilitating the assessment of investment objectives and comparing of results, that enable investors to make better decisions.
In such a scenario, even if passporting is no longer an option for distribution, digitalisation could deliver a solution that increases the demand for such a product and makes opening local investment management offices in Europe and elsewhere a cost-effective proposition. After all, that is what the Irish fund market did, not so long ago, to accommodate the needs of European investors, such as the Germans who needed to invest in European-approved wrappers.
So the opportunities that Brexit brings are vast and could potentially disrupt the existing worldwide model very profitably for asset managers in the UK. And, in those circumstances, who cares whether ‘Brexit really does mean Brexit’?