Sir Jon Cunliffe, who is responsible for financial stability at the BoE, said he had concerns that the plans to alter so-called delegation for asset managers were motivated by a desire to take business away from London, which could frustrate market-based finance around the world in the long run.
In a speech on Friday in California, Sir Jon said: “To the extent [that the proposals] are motivated by Brexit and a desire to pull activity and risk back within jurisdictional boundaries, contrary to current global practice, I do have a concern that they could act as the harbinger of fragmentation to come.”
He added: “That would raise the cost and reduce the efficiency of market-based intermediation of savings in the EU and, if it led to wider effects, further afield. It would also slow, and perhaps frustrate, the development of market-based finance globally as a way of diversifying economic risks and benefits across jurisdictions and of dampening economic and financial shocks.”
The rules around delegation threaten to be a lightning rod in the negotiations about how to regulate financial services after the UK leaves the EU. Delegation deals with the fact that most asset managers are registered in countries such as Ireland and Luxembourg but most of the actual business is done in London.
The Paris-based European and Securities Markets Authority, the supervisor of supervisors, warned last year that fund managers would need so-called substance — or boots on the ground — in the offices where funds were domiciled if they wanted to continue to use delegation rules.
Sir Jon highlighted on Friday the relatively small amount of EU savings managed in the UK. He said that UK-located asset managers manage around 10 per cent of the $12tn of assets of funds domiciled in the rest of the EU. Those in other parts of the world, such as the US, manage a far greater amount of the EU’s assets — about 20 per cent, he added. [...]
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