Introduction to the Irish Funds Brexit Update - October 2016
The outcome of the UK’s referendum on EU membership and the impact it is having and is likely to have, has been the most significant and unanticipated European political event of the last 20 years. While much is still unclear about what form the UK’s exit from the EU will take, we can be certain of our own role and determination to assist managers, irrespective of their starting point, in achieving their cross-border distribution goals.
Assisting fund managers
While there has been considerable volatility both in the markets and political landscape, fund managers’ needs pre- and post- the Brexit result have not fundamentally changed. Managers continue to look to:
- Further their objectives to grow and scale their business cross-border by accessing passports for products and services
- Utilise effective EU-based national regulatory and taxation regimes
- Have available the expert knowledge and skills across a range of providers covering the full breadth of investment strategies and asset classes
- Have the ability to conduct business efficiently with regards to language, legal system, service culture and cost
Not surprisingly, the main questions we are being asked by managers are, how they can work with Ireland to retain access to the EU, in direct portfolio management services and by distributing funds. Our members are continuing to help managers and provide solutions and as Ireland has addressed needs in the funds industry successfully for more than 20 years, it will continue to do so post-Brexit.
Ireland is a committed member of the EU and Irish-domiciled funds will continue to access the EU single market. The funds industry here remains focused on its continued ability to provide seamless access to key financial services passports, as well as to assist global and regional players examine the specifics of their product, service and distribution footprints and the business models and structures which support them.
Areas of focus and what we are seeing
With the initial shock of the UK’s exit vote now in the past, the industry has moved towards planning and action to ensure continuing access and guard against some of the possible negative impacts of Brexit. In this post-vote/pre-Brexit stage, we must be careful about making assumptions. The widely held belief before the actual vote, that the UK would remain in the EU resulted not only in a state of shock, but also one of being unprepared. Moving forward, there will be a series of junctures along the way which will require those in our sector (and beyond) to map their businesses in terms of products/services, clients, markets, delivery mechanisms, operating models and business structures against what will be a slow emerging new reality.
Developments and areas where questions are arising more recently are:
- Management companies ensuring access to the EU market post-Brexit – With regards to UCITS, ManCos are showing an interest in setting up Irish UCITS ManCos (where the product holds the passport) and for UK AIFMs, to preserve EU marketing access by establishing Irish AIFMs, appointing Irish AIFMs or using platforms.
- Segregated mandate solutions under MiFID – questions are arising surrounding potential issues where EU-based clients want to contract with EU-based providers of services.
- Pension funds and preserving tax transparency – there has been an increased focus on preserving tax transparency and increased queries on Irish Common Contractual Funds (CCFs).
- EU Insurance Regulation / Solvency II Directive – concerns are being voiced regarding the impact of more onerous liquidity requirements on how collateral is provided and if funds/funds units can play a part in a solution.
Our priorities following the vote
Brexit adds a new and significant dimension to the Association’s multi-faceted work and outreach. As always, our focus is that the ‘system’ here is prepared and welcoming to help new and existing clients. In moving into territory where the end-position and duration are not and cannot be fully known, our priorities are to:
- Engage with our members and stakeholders and handle inbound queries from managers and service providers
- Advocate to government and the authorities here regarding the importance of readiness for the funds industry
- Speak and listen to stakeholders and peers across various industries and regions to understand concerns
Continuing on our already strong advocacy platform, we are engaging with the Irish government, the Central Bank of Ireland and agencies to keep the funds industry high on the agenda in Brexit and related discussions and to ensure that the environment and infrastructure is available to provide solutions to those who need it.
Alongside our 38 Working Groups, we are identifying and working through positions which may arise in negotiations, engaging with EU colleagues on these matters, and developing communications and informational materials. We are regularly meeting with our members, stakeholders and peers to listen, handle queries and act responsibly.
The aim of this publication
The objective of this and future updates is to provide a series of views and insights on the key areas and impacts of Brexit from the perspective of member firms and participants involved in the Association’s work. The contributors come from various areas of the funds industry, including management companies, law firms, audit firms and other service providers. We hope you find these useful and that you reach out to us for assistance.
Pat Lardner, Chief Executive, Irish Funds