Regulator demands detailed Brexit plans from UK asset managers
FCA asks for information on staff relocation and impact on capital and IT systems
The UK regulator has sent letters to several of Britain’s largest asset management companies requesting detailed information about their Brexit contingency plans as concern mounts about the impact of the EU divorce process on the City of London.
The Financial Conduct Authority’s letter contains 30 questions about the effect of Brexit on asset managers’ business models, including whether or not UK-based companies are planning to relocate staff or operations to the EU.
Asset managers have also been asked to explain whether their Brexit contingency plans will affect their capital base or IT systems; whether they have applied for new licences from foreign regulators; and to what extent fund houses are responding to Brexit based on how other companies react.
The letter comes at a pivotal moment for the UK’s investment industry, with many asset managers divided on how best to prepare for Britain’s departure from the EU before formal negotiations over the terms of Brexit between Brussels and Westminster begin.
Last week it emerged that Jupiter and Legal & General Investment Management, two of Britain’s largest fund companies, plan to set up new entities in mainland Europe in response to Brexit, while Intermediate Capital Group and M&G have already strengthened their presence in Luxembourg.
Other asset managers, including Schroders and Ashmore, have held back from making operational changes before having more clarity on Britain’s future relationship with the EU.
Last week Martin Gilbert, chief executive of FTSE 250-listed Aberdeen Asset Management, said that if clearing of euro securities and pricing of euro assets moved from the UK to other EU countries — as some European politicians have proposed — his company would need to move jobs to mirror those shifts.
But he clarified: “This is not a hugely significant point. It may be a handful of jobs rather than anything more.”
The FCA’s letter was sent to 20 companies overseen by the regulator, including asset managers and custodians based in the UK with international operations. The FCA declined to comment.
Sean Tuffy, head of strategy for Europe at Brown Brothers Harriman, the US bank, said: “With the clock ticking on Brexit, the FCA needs to be looking at what the impact will be on asset managers, and how [Brexit] will change the business that it oversees. [The regulator] also needs to gauge how far along groups are in their thinking. I suspect they will find that many groups have far more developed plans than has been publicly announced.”
The letter was sent out soon after the Bank of England wrote to banks and other large financial services firms in April giving them a deadline of July 14 to set out their plans for a hard Brexit whereby Britain does not maintain access to the single market.
Sam Woods, head of the Bank of England’s Prudential Regulation Authority, said in the letter: “Our current assessment is that the level of planning is uneven across firms and plans may not be being sufficiently tested against the most adverse potential outcomes.”
Owen Lysak, a partner at Clifford Chance, the law firm, said: “The FCA does not want to see a sector that falls behind in terms of planning, or that is at risk because it has not planned appropriately. As the Brexit negotiations start to ramp up, the FCA will want to feed into the government on the issues that are starting to develop.”