Following the UK’s referendum vote to leave the European Union, asset managers and financial institutions based in the UK should be considering the potential impact of Brexit on their businesses and, in particular, how they will maintain access to the Single Market in the event that Brexit results in the loss of passporting rights.
Whilst the future political and trade arrangements between the rest of the EU and the UK following Brexit remain wholly unclear, there is a significant risk of an outcome in which access to the Single Market is lost (although this would not be the case if the UK becomes an EEA Member once outside the EU).
Where access is lost, asset managers distributing UK funds under the Undertakings for Collective Investment in Transferable Securities Directive (UCITS) and/or the Alternative Investment Fund Managers Directive (AIFMD) passporting arrangements, and financial institutions with a pan-European business headquartered in the UK and which rely on passporting to offer services across Europe, will need to move aspects of their business to Continental Europe to ensure continued access to passporting arrangements.
Financial institutions with branches in the UK which currently benefit from passporting in from another EEA State will need to consider how they will continue to operate in the UK post-Brexit. If they will be carrying out regulated activities in the UK post-Brexit, these groups will need to obtain the relevant regulatory permissions for the branch (if the Financial Conduct Authority (FCA) will grant these to a branch) or a new UK entity. This is also likely to require some intra-group reorganisation in order to move businesses within the group from the branch to the new UK entity and if necessary create additional UK entities.
Given the timescales involved in (i) obtaining the relevant regulatory permissions; and (ii) transferring businesses, these are issues which asset managers and financial institutions need to consider and start work on in the next three to six months.
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