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Luuk Jacobs

Brexit preparation - time is running out

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Luuk Jacobs

The CSSF says existing Luxembourg-based companies “wishing to receive additional licences or substantially changing operational models to cope with Brexit-related aspects” should speed up their Brexit planning and “submit their applications […] as soon as possible”.

I am surprised that there are still companies that need to be reminded of this. Independent if you believe that Brexit will happen and if it will be a hard or soft Brexit, I would have thought any company by now would have done their risk assessment and would have put its plans in place ? 

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Rory McMillan

You'd have thought so...

https://www.independent.co.uk/news/uk/politics/brexit-no-deal-uk-leave-eu-latvia-jeremy-hunt-meeting-foreign-minister-a8492281.html

There's one of these scaremongering type articles almost every day about the potential for damages with a no-deal brexit... Can anyone who knows a bit more about it suggest what the main repercussions (both within AM and more generally) to a no-deal brexit would be?

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Ben Cole

The biggest headache from a asset management perspective is in respect to passporting. i.e Asset managers across the EU rely on the passporting regime that enables them to sell services across the single market with ease. Once the UK leaves, it is not clear whether UK asset managers will find it as easy to access and service European investors.

 

For example, Italian pension schemes require their assets to be run by EU-based managers, and currently, firms in the EU can delegate the management of a fund to another jurisdiction i.e  London.  For the UK to continue to manage European mandates, it is vital that the EU grants ‘third-country equivalence’ after Brexit. Whilst the likes of some emerging markets such as Mexico and Brazil and included in the EU equivalence list, it’s not a given that the EU will include the UK, although that wouldn’t benefit anyone. – However for all we know the EU may wish to try and punish the UK

 

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Rory McMillan

@Ben Cole do you think the EU would take such a harsh approach with the UK, given that it'd probably have financial repercussions for them as well? 

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Ben Cole

@Rory McMillan I very much doubt it, as you rightly point out there would be huge financial repercussions

 

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Jonathan Max

I’m sure there will be more fund managers launching products in the UK but….we are already seeing significant diversification strategies and companies broaden their reach. But @Ben Cole, I agree there isn't necessarily much of an incentive for the EU to make this easy for the UK

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Luuk Jacobs

I believe neither the EU nor the UK would, through Brexit, benefit from UK Asset Managers not being able to Manage at least existing European mandates. This would be a too big shock to the system and create an enormous risk to the performance of these mandates and clearly European investors would be hit hardest by it. Nevertheless the ESMA (EU regulator for the asset management industry) has clearly indicated that it is looking for better control and governance over these mandates (and specifically EU funds (Lux., Ireland). Ireland earlier this year and Luxembourg recently have started to incorporate this in their local legislation. This will initial mean a gradual move of risk and compliance responsibilities away from the UK into the EU with possibly over time fund managers.

For the EU it would be hard to defend that the UK is not equivalent directly after Brexit; the UK regulation is 100% aligned with the EU, whereas it would be hard to argue that the UK is not as equivalent as Mexico and Brazil or even the US. If the UK where to divert significantly away from the EU model after Brexit and over time than of course equivalence could be at risk.

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Ben Cole

Article in todays FT indicating the majority of Asset Managers are preparing for a hard Brexit. 

Interestingly it goes on to state that 89% of all AM's polled have a Brexit response plan, yet only 49% have already put those plans into action.

https://www.ft.com/content/66318f28-a229-11e8-85da-eeb7a9ce36e4

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Rory McMillan
1 hour ago, Ben Cole said:

Article in todays FT indicating the majority of Asset Managers are preparing for a hard Brexit. 

Interestingly it goes on to state that 89% of all AM's polled have a Brexit response plan, yet only 49% have already put those plans into action.

https://www.ft.com/content/66318f28-a229-11e8-85da-eeb7a9ce36e4

Those are pretty scary statistics... The lead time to implement a Brexit response plan, particularly if it considers the worst case 'no deal' scenario, will surely leave the 51% pretty tight for time between now and March? Not to mention the 11%...

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Ben Cole

Some interesting statistics in respect to the plans of 55 investment management firms (45% with a HQ in the UK, 34% with a HQ in the EU and 21% with a HQ in the US)

 

  1. 83% of firms have a theoretical plan to respond to Brexit; but only 49% of firms have put their plan into action. 31% have plans under review, with 17% still unsure what do to, waiting to pull the trigger once the political situation becomes clearer.
  2. 59% are already working towards a hard Brexit rather than wait for potential political solutions which have no guarantee of emerging. Of these, 55% believe Brexit will be softer than currently anticipated but given the political uncertainties firms are left with no other choice but to implement hard Brexit plans.
  3. 54% of UK firms and half of US firms are aware of the challenges and pressing ahead with Brexit implementation plans; whereas just 40% of EEA firms have plans in place.
  4. 87% are planning to keep trading desks where they are. However, this may be temporary with only half anticipating that change may be required depending on the outcome of delegation. A third are keeping a watchful eye on the potential fragmentation of liquidity; but just 17% are ready to move today should the need arise.
  5. 70% believe the greatest impact will be on legal, with 52% expecting this to impact their clients significantly.
  6. 63% believe there will be no additional costs incurred in execution as a result of Brexit— despite a third anticipating a split in liquidity formation.
  7. 50% are reviewing their settlements options. Only a third feel comfortable that no change is required.
  8. Three quarters expect the UK to retain financial services post Brexit due to a mix of liquidity access, staffing talent and ease of access.
  9. Frankfurt is anticipated to emerge as the European beneficiary of Brexit—but this is also dependent on the business type, with Dublin and Luxembourg emerging as winners for asset management services, and Amsterdam as the main location for trading venues.
  10. Regardless of Brexit, firms expect MiFID II regulatory change to continue, with 42% believing that the outcome will negatively impact both sides of the channel.

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Luuk Jacobs

I am mainly surprised by the in point 1 mentioned 17% waiting till the political situation becomes clearer ...... more than 2 years after the referendum there is continued going left and right and I would wonder in the case of the 17% if they have a sufficient risk management in place.

Yes it might all come together by March 30, but the principle of good risk management is that if there is no clarity on a situation, you managing this by putting mitigating plans in place, not just waiting till the situation becomes clearer !!!!!

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Eva Keogan

There will be a lot going on from now until Christmas - just by looking at the Investment Week live blog on Brexit it is easy to see with six months on the clock there is a flurry of activity but May and Merkel are toughing it out without pulling any punches just quite yet - some good old fashioned political brinkmanship going on here and interesting points made here in The Guardian about key events in the next few weeks - so it's now wonder many are playing a waiting game and that itself could be seen as risk management?

3724.jpg?width=1200&height=630&quality=8
WWW.THEGUARDIAN.COM

Chancellor’s comments made to German finance chiefs as UK-EU negotiations face deadlock

 

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