After Brexit, providers of UK financial products should only have to apply EU rules if they chose to sell into the EU.
The AIC’s ‘opt-in’ position is not new. However, it is worth restating as we enter the final stages of the Brexit withdrawal negotiations which will set the scene (if agreed) for negotiating our future relationship with Europe.
The UK funds sector represents a substantial portion of the UK’s financial market. Assets under management for overseas clients totals £3.1 trillion; a significant proportion of which are non-EU clients. This highly regulated sector supports the City’s role as a global financial leader. Ensuring UK oversight of these activities should be a priority.
The UK is also supported by a large and growing investment company sector. But the barrage of regulation that followed the financial crash, however well intentioned, has not properly recognised the unique characteristics of our members. Brexit offers an opportunity for the UK to set new standards for this important sector and to accommodate the needs of investment companies.
With little investor demand in the EU, it is inappropriate for a largely UK-centric sector to operate permanently under EU funds regulation, unless it chooses to market to EU investors.
Against this backdrop, the AIC is calling for a tailored UK regime.
This would involve setting separate rules that would impose EU obligations only where providers take a commercial decision to sell to EU customers. Firms would then ‘opt-in’ to comply with EU regulations when selling in EU markets.
The framework offers real benefits:
For practical reasons, under the AIC's preferred regime, the immediate post-Brexit UK rulebook may look very much like existing EU legislation. As the UK becomes accustomed to its new flexibility, it could assert its regulatory freedom to consult on and make rule changes.
This may include ‘tidying-up’ regulatory overlaps. A good place to start may be with the Alternative Investment Fund Manager Directive (AIFMD) which for investment companies replicates many of the requirements of existing company law and market rules; making it potentially superfluous to requirements.
Another priority would be addressing the problems with PRIIPs Key Information Documents.
The UK has the opportunity to build on its reputation as a respected, global financial centre. The extent to which this is achievable may soon become apparent.