Brexit: Asset managers prepare to lose passporting and equivalence

The asset management industry is preparing to lose passporting and equivalence following Brexit, a new report released today says.

This means managers would have to open a subsidiary operation in the EU27 or find an EU-based business partner to offer management services to Continental clients, the Cerulli Associates report says.

The report notes that £1.2trn of the UK’s £5.7trn assets under management are from Europe, bringing in about £6bn annually in revenue. Up to half of that could be under threat following the Brexit, the report notes.

All people interviewed for the report say plans are being made on the assumption that the UK loses passporting rights and that equivalence is a possibility, but could be scuppered by hardball politics.

“Industry sources tell us that asset managers are typically comparing three or four jurisdictions. The expectation is that most will have decided on, and likely announced, their choice of EU27 location by the end of June 2017,” says Barbara Wall, Europe managing director at Cerulli.

Asset managers are seeking a phased approach to contingency planning initially seeking the smallest possible presence in the EU27, thereby being easy to unwind if the UK retains passporting or to expand if negotiations take a turn for the worst.

The report says that constitutes ‘substance’ in terms of the functions and staff levels of a subsidiary operation is not clear.

Additionally it says there are questions over whether firms would be required to relocate portfolio managers.

The report notes France, Germany, Ireland, Luxembourg, and others could have a vested interest in a hard Brexit as they vie for a slice of the UK’s financial services business.

It also warns asset managers to bear in mind that trade in goods will take priority over services, including financial services, where substantial talks will not start before 2018.