Over the last 3 months, PwC’s Asset and Wealth Management EMEA Brexit team have been hosting a series of client webinar events focused on the "Beyond Brexit" phase. These webinars have been looking at some of the post Brexit open-issues which could affect AWM’s in 2021 and beyond. In this article, we have summarised some of the key issues that these webinars have explored:
First Webinar - 3 February 2021 - Brexit and Beyond
Our first webinar focused on the immediate impact for Asset and Wealth Managers (“AWM’s”) of the EU-UK Trade and Cooperation Agreement (“TCA”).
Although the signing of the TCA on the 24th December 2020 was a major political event, it was noted that the TCA is primarily a trade agreement and provides no new arrangements for financial services to replace the existing “EU passports”. Instead, the EU-UK Declarations, which supported the TCA included a shared commitment to agree a Memorandum of Understanding (“MoU”) that should establish the “framework for cooperation”, including on equivalence decisions, by the end of March 2021. However, early indications suggest that the MoU that will be published shortly will disappoint many who had hoped for more substantive progress towards long-delayed decisions about regulatory equivalence.
During the first webinar we considered the impact of Brexit on the distribution of funds from the UK to the EU and from the EU to the UK.
Marketing into the UK
The end of passporting between the UK and EEA is of course a two way street, absent the UK Temporary Permissions Regime (“TPR”), EU funds would not be able to be distributed in the UK. Post Brexit, the TPR is now in effect for those firms and funds that notified the UK Financial Conduct Authority (“FCA”) that they wanted to enter this regime.
Whilst the TPR allows EU firms and funds to continue to operate within the UK, it is expected that firms will need to apply for full authorisation in the UK and funds will need to at a minimum notify the FCA under the National Private Placement Regime (“NPPR”). Therefore we noted that EU firms should now be thinking beyond the current TPR environment and begin to build out their strategy for the UK market beyond TPR.
Marketing into the EU
Some asset managers had held off determining or implementing their Brexit solution in the hope that the Brexit deal would provide a clear answer; now that it is clear it doesn’t those managers are having to quickly identify and implement a Brexit plan. For those non-EU managers who have not set up their own EU Manco solution there are an array of different solutions which have emerged for still accessing EU investors or managing EU funds. At PwC we have seen and worked on all of the permutations of solutions that are in the market and we can help managers assess the options that they may be presented with. What is clear is that there are implementation complexities in many of the market solutions which managers have to carefully work through.
Second Webinar - 18 March 2021 - Delivering Substance
This webinar focused on delivering substance - where the substance bar has moved to during the Brexit process and where we might see further specific substance requirements from either the FCA or EU regulators as 2021 unwinds. In addition, we also covered the people and travel issues as asset managers look to deliver substance in both their UK and EU operating models. The webinar included PwC representatives from our UK, Luxembourg and Irish offices.
We considered how momentum towards greater substance had started even before Brexit because of regulations and was likely to continue particularly with the AIFMD2 Review still in progress. Our Luxembourg office noted that there needed to be a renewed emphasis on training staff as compliance and AML specialists with the relevant expertise to control delegated activities.
We also considered some of the immigration consequences of Brexit and the increasingly complex rules that both EU and UK travellers need to be aware of. The main message for EU nationals was to plan in advance because to work in the UK going forwards would require a specific authorisation. However, it is possible to travel to the UK for up to 6 months if the relevant person meets business travel requirements.
For UK nationals, post Brexit they now face the same requirements as people from other third countries and need to be aware that each EU country has its own requirements and restrictions. Therefore, a British national travelling to the EU will need a work permit and they should plan in advance because it can take up to 6 months to get one. For business travel, British nationals also have to make sure that they meet the permissible activities in the relevant countries. British nationals are also not able to spend more than 90 days in any 180 day period in the Schengen zone collectively (which covers most EU countries). If they exceed the 90 day limit, they would be required to obtain a work permit.
Finally, we also discussed what substance may look like in a “Beyond Brexit” and post-COVID world. We noted that rather than focusing purely on minimum substance to satisfy the regulator, businesses will need to consider the optimal model to run their business, manage their portfolios and engage with and service clients.
Third Webinar - 22 April 2021 - Beyond Brexit, the Client Perspective
Our final webinar focused on the future of regulation between the UK and EU, what would divergence or convergence mean for asset managers and the challenges of implementing their Brexit response and in gearing up for future change. Our client panel members included:
- Michael Back, Head of Tax - Man Group
- Jackie O’Connor, Managing Director - Goldman Sachs Asset Management
- Oliver Al-Alawi, EMEA Head of Corporate Tax - BlackRock
- Yvonne Connolly, Group Chief Strategy Officer & Country Head, Ireland - Carne Group
During the client panel we discussed changes to the client’s operating model to adapt to Brexit and how their clients’ experiences had changed. It was noted that a lot of work had been done to mitigate disruption and costs and to ensure that any changes that had been made to operating models were as seamless as possible for the client.
We also looked forward to focusing on the main opportunities or challenges on the horizon. In particular noting that the lack of retirement savings for huge swathes of our population - and the importance of the cross border / global nature of the AWM industry to address this gap - illustrated the vital, and continuing importance of the AWM industry.
Our PwC Panel then considered the future of regulation between the UK and EU. We noted the significance of the MoU between the UK and EU (of which the text is expected to be made public shortly), while observing that there was still no easy path to equivalence.
We also noted that in the UK there were already some early signs of the UK forging its own path within the current pipeline of EU regulations. For example, the Investment Firms Prudential Regime (“IFPR”) will be based on, but not identical to, the prudential framework in the EU Investment Firms Regulation (“IFR”) and the Investment Firms Directive (“IFD”). A similar approach is also expected to be taken by the FCA with respect to the EU Sustainable Finance Disclosure Regulation (“SFDR”), which became effective in the EU on 10 March 2021. However, while there would be some differences in the UK approach, the overall objectives are, so far, expected to be broadly the same. However, from an EU perspective we noted that there were some major regulatory changes on the horizon including in relation to sustainable finance and of course the continuing AIFMD2 Review.
As we move further into 2021, we will continue to see the evolution of the ramifications of Brexit on the EU and UK funds landscape.
We await the European Commission’s (”EC’s”) response to the AIFMD consultation (which closed on the 29th January). In particular, we will be interested to see whether the EC decides to overhaul the current rules on delegation. This is a theme that was raised by the European Securities and Markets Authority (“ESMA”) last August when they suggested that further legal clarifications on the maximum extent of delegation would be helpful to ensure supervisory convergence and ensure authorised AIFMs and UCITS management companies maintain sufficient substance in the EU. In the UK, we also have the UK funds review which recently closed its call for input phase.
Given this mix of unfolding complexity and change, we have found that there has been significant interest in our Brexit webinars. Our first webinar alone attracted 385 registrations.
We will continue to follow all these regulatory developments very closely and help our clients navigate through this uncertain landscape.
For further information, please contact:
Partner and AWM Beyond Brexit Leader
M: +44 (0)7734 607485