The credit rating agency said the asset managers would face some pressures in the event of a no-deal Brexit – such as uncertainty about the future status of EU employees working in the UK and vice versa – but that it considered these manageable.
Temporary measures put in place by UK and EU regulators would minimise the operational disruption of a no-deal outcome, and asset managers’ own efforts to prepare for such a situation would also help protect their credit profiles, Moody’s added.
The rating agency highlighted that UK-based asset managers had focussed in particular on creating or expanding entities regulated in the EU under MiFID legislation to prepare for the loss of EU “passporting” rights if the UK left the EU without a deal.
This exercise had entailed costs so far contained at estimated 0.1%-0.6% of operating expenses, according to Moody’s.
In February, the European Securities and Markets Authority and the UK’s Financial Conduct Authority (FCA) announced an agreement to preserve delegation rules in the event of a no-deal Brexit.
These rules allow UK asset managers to create funds that are domiciled and regulated in the European Economic Area (EEA) – which includes EU countries – and market them to clients in the EEA or EU while continuing to manage them from the UK via an outsourcing arrangement.
According to Moody’s, about 84% of the assets that UK-based firms manage on behalf of non-UK EEA clients are in funds managed via delegation.
In addition, the UK has put in place a “special permissions regime” to allow asset managers based in the EU or EEA to continue operating in the UK for up to three years after a potential no-deal Brexit.
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