The industry body representing investment professionals conducted a membership survey in February this year which found over half of respondents in the UK expected to relocate some of their operations as a result of Brexit.
However, when asked where they may relocate, there was no clear financial centre in Europe set to benefit, though Frankfurt, Dublin, New York and Paris were likely to be the biggest winners.
“Now fund management activities are clustered in London, and rather than cluster in a single alternative location in future, the industry is likely to disperse across a number of centres,” said Rhodri Preece, head of capital markets policy at the CFA Institute. He was speaking at a media briefing this week on the release of its guide: Brexit: What it means for Investment Management.
The UK funds industry manages around £1.2trn ($1.6trn, €1.35trn) of assets on behalf of clients in continental Europe, according to the Institute. This forms a large slice of the £2.2trn of assets managed in London on behalf of overseas clients, itself a chunky 40% of the total of assets under management in the UK.
So, funds managed in London for clients in Europe are significant and already the European watchdog, which regulates this market, has signalled it is developing a strategy for this part of the investment sector post-Brexit.
No brass plaques
The European Securities and Markets Authority (ESMA) said, in a paper released last week, it was not going to allow funds to set up so called “letter box” entities across Europe in the wake of Brexit.
In fact, as a minimum, funds will have to have two senior managers in their European operation and follow EU remuneration rules, which involves a cap on variable pay like bonuses.
According to Josina Kamerling, the head of regulatory outreach for Europe at the CFA Institute, the ESMA paper indicated that the EU watchdog was moving towards a strategy where funds wanting to operate across Europe after Brexit will have to justify why they should be able to be located outside the EU.
“The ESMA paper raised the bar on delegating functions to third countries,” Kamerling said.
As part of developing this strategy, ESMA is expected to come out with new guidelines on cross border fund distribution in the final quarter of this year, Kamerling believes.
According to the Financial Times, supervisors at the Bank of England and the Financial Conduct Authority, who are overseeing financial groups’ contingency planning, have recently pushed the government for more clarity on what a post Brexit deal might look like.
The newspaper said they are worried that without such clarity before the end of the year, companies will be forced to implement their plans, no matter what the final Brexit agreement looks like. They have dubbed this the “point of no return”.