By: Tom Kirkpatrick
The United Kingdom (UK) electorate’s decision on June 23 to leave the European Union (EU) caught some managers off-guard. Now, firms must consider what operational changes are required to support their businesses moving forward.
The nature of the exit is uncertain, but regulations and directives (e.g. the Markets in Financial Instruments Directive II [MiFID II]), will remain in place, with the UK having less input into any future changes. For example, if the UK exits from the single market, there are no assurances that UK fund managers or banks will retain their passporting rights. This will force many organizations to recalibrate their businesses and possibly re-domicile. Some fund managers may restructure their organizations out of Dublin or Luxembourg, and then delegate portfolio management back to the UK manager, assuming the European Commission or European Parliament permits this type of delegation.
Whatever the outcome, fund managers must work with providers who have an excellent understanding of regulatory issues across markets. Regardless of the terms under which the UK leaves the EU, regulations (e.g. MiFID II, Alternative Investment Fund Managers Directive [AIFMD], and the European Market Infrastructure Regulation [EMIR]) will still apply for UK firms active in EU markets and seeking to access EU investors. Firms must work with service providers to maintain compliance with those rules. MiFID II takes effect in January 2018, likely before the UK will exit the EU, so firms should continue to work toward the original compliance deadline.
Managers’ priorities should not change or deviate and they must continue to comply with incoming EU regulations. Once the exit terms are negotiated, firms should take notice. Working with a proactive and flexible service provider enables managers to handle this highly complex process. The business and regulatory outcomes of Brexit are unknown, but service providers that have expertise and industry-leading experience will be invaluable to fund managers. Proper management through these turbulent times will ensure the impact on businesses and investors is minimal.
The consequences of Brexit are unknown. However, fund managers will likely face significant changes to their businesses. Working with strong, experienced service providers will help them meet these new challenges successfully. SS&C GlobeOp is the world’s second largest hedge fund and private equity fund administrator. Our world-class team of fund accounting experts provides clients with the flexibility and control they need during times of volatility and change. For more information, contact firstname.lastname@example.org.