Market access: All eyes turn to equivalence question as Brexit deal is completed
Managers plea for clarity over passporting rights
The agreement of a Brexit deal was welcomed by financial markets in late December as sterling and UK equities strengthened in response, but the bare bones deal leaves UK asset managers in the lurch as their access to European markets remains in question.
Having warned in the week prior to a deal being agreed that the BoE could not stop all cross-border disruption arising from Brexit, Governor Bailey said last week that the EU's demands to know more about the UK's "future intentions on regulations" was "problematic…in terms of equivalence".
Bailey warned parliament that he did not want equivalence at any price.
If an agreement on financial services is not reached, UK firms will be forced to negotiate with individual EU nations' regulations for access to their markets.
Going forward
Head of asset management for Europe at Linedata Paul Elflain explained that under the current third-country rules UK firms "will have the choice to make of whether they effectively cherry pick the countries that they want to be active in, if they want to carry on business, or they hope for the broader approach" with equivalence.
"It may be easier for smaller firms to deal with individual regulators and nations, while the larger firms, which have to deal at scale, will be much more interested in a pan-European approach," he added.
Elflain said the question of divergence of regulatory standards between the UK and the EU is going to be a "big part of the equivalence conversations", and will mean that "the FCA and the UK will continue to be very much influenced by other regulators, such as ESMA".
"Ultimately, regulatory bodies have a broad mandate to maintain effective and orderly markets," he added. "So everyone is effectively pushing in the same direction.
"There will always be influence and strong cooperation between the UK regulators and European regulators."
In the face of damning reports on its handling of the Connaught fund and London City & Finance scandals, the FCA has flagged that it intends to undergo substantial change.
Elflain said the FCA's promise to "transform how they work and how they regulate", is likely to be more influential on the future of UK regulation than Brexit.
"They plan to build back better with regard to the investment management sector specifically, he added.
"They stated quite clearly where they see the 'harm' that impacts the investment management sector, such as poor governance, lack of value, and lack of investment in technology and operational resilience.
"I would expect these themes to continue to manifest in regulation and really evolve the way in which the FCA looks at the asset management sector."
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