10 August 2021

Do new EU rules spell Le Crunch for UK asset managers selling into Europe?

By Dr Andrew Tarrant

It’s no secret that French policymakers see Brexit as an opportunity to take financial services jobs from London and resettle them in Paris.  Their chance is coming – the rules which govern the management and distribution of products sold by asset managers to professional investors are up for review, just at the moment that France takes on the presidency of the European Council.

These rules allow non-EU headquartered firms to take advantage of national private placement regimes (NPPR) in the member states with fairly minimal “boots-on-the ground”. In principle, the original 2013 Directive could even have allowed a non-EU headquartered firm to passport to all the other member states as long as it had a licensed presence in one member state. This passport was intended to apply to any fund manager from a country that the European Commission deemed as having a regulatory system with equivalent robustness. Once that happened the intention was that the national private placement regimes would have been removed. This would have suited non-EU fund managers as not all member states operate hospitable NPPRs (or at all). However, Brexit happened and there is no sign that the European Commission is going to judge the UK financial regulatory system or any other equivalent any time soon.

The College of Commissioners intends to discuss the review of the revised Alternative Investment Fund Managers Directive on October 27. Draft proposals will likely to appear before the end of the year. Review by the member states in Council working groups would then begin under the aegis of France, which occupies the revolving presidency for the first six months of 2022. The Parliament will publish its views first and the Council second.

A process of revision that was probably originally intended to be a tidying up exercise of the 2011 rules therefore looks as if it could take on another flavour. The European Securities and Markets Authority, has provided the Commission with an opinion which in effect focuses on making non-EU fund managers move more activities to the EU. 

Currently UK-based asset managers running a UK-based fund but with a licensed presence in a member state under the Alternative Investment Fund Managers Directive can sell the fund in the member state and with, depending on content of the local NPPR, a relatively low European headcount; often as few as two senior staff, while delegating many risk and management activities back to the UK.

Some legislators, particularly in the European Parliament, tend to take a knee-jerk view that delegation is a way of trying to get around European regulation and creates an unlevel playing field, prejudicing the competitiveness of EU fund managers. Others, not least France, see limiting delegation to foreign entities as a way of repatriating jobs and businesses.

The job of those lobbying for British financial institutions will be to persuade enough European policymakers that delegation is not a means of avoiding tough regulation and that it assists European financial institutions such as pension funds in accessing at a reasonable cost the investment products and skills that global fund managers make available. They will also want to point out that the imposition of restrictions on delegation will likely invite reciprocal responses from the EU’s trading partners, hampering EU-based fund managers from operating in the most efficient way possible too. The clock is ticking.

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Andrew Tarrant is Director of EU Affairs at Whitehouse Communications.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.