06 July 2020

FT: Brexit shutout looms for UK funds as market access talks falter

The risk of UK funds being frozen out of the European market at the end of the year has risen after Brexit negotiators missed a key milestone aimed at securing market access for the City of London.

The EU and the UK failed to meet their June 30 deadline for completing assessments of each other’s regulatory regimes for financial services, a prerequisite for allowing mutual market access post-Brexit. The missed deadline in the so-called “equivalence” regime has sparked fears of prolonged uncertainty and disruption for Britain’s £9tn asset management sector at a time when groups are already grappling with the fallout from the coronavirus crisis.

Patrick Thomson, chief executive of JPMorgan Asset Management’s business in Europe, the Middle East and Africa, said a no-deal Brexit would create “more complexity” for fund companies. That scenario has become more likely as a result of the UK’s decision not exercise the option to extend its transition period beyond the end of this year. “We have got enough on our plate with the Covid-19 recovery and understanding if markets have got ahead of the economic indicators,” he said. “Given the pressure the asset management industry is already facing in terms of fees and [the need to invest in] technology, to introduce further uncertainty would not be helpful at this time.” Mr Thomson added that UK asset managers needed clarity on future market access rights under the equivalence regime. “[We need to understand] what the rules are and what the implications are for us so that we can start to plan for the future.”

Asset managers’ Brexit concerns centre on the loss of “passporting”, which allows them to sell funds easily across the EU. But a cliff-edge Brexit with no equivalence ruling in place would also have implications for how groups structure their sales teams and where they trade shares...

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