Brexit position paper - The path of least upheaval
By Jack Inglis
Published: 19 December 2016
Before the June 2016 referendum, AIMA remained neutral on Brexit. This stance reflected both our global status and the fact that our members mostly did not adopt corporate positions. Now that Brexit is happening, we have moved to consult our members and reach as best we can a consensus on the best way forward both for the UK sector and the rest of the world.
Today, we have published, jointly with the Managed Funds Association (MFA) and the Alternative Credit Council (ACC), our position on Brexit which focuses on the UK perspective of the problem. The paper can be downloaded here (it's for AIMA members only). We will be finalising an EU version soon. We don’t expect the substantial position to be any different in this version, only to use different background material to support it.
At the heart of our proposals to government is the desire to continue to do business in the EU and further afield. However we must first face the reality that it’s highly unlikely any final arrangement will be agreed and implemented into law by the time the UK formally exits the EU.
A transition agreement would prevent confusion regarding the regulatory landscape and help avoid market uncertainty. We urge government to be wary and not burden businesses further with a third set of rules when agreeing a transition deal. The most sensible option in our view therefore would be to continue the status quo until a new UK/EU deal can be struck.
The UK alternative investment management industry plays an important role in the economy. It sustains around 40,000 skilled jobs. Businesses and individuals contribute around £4 billion a year in tax. Post-2008, the industry’s role has further increased in significance; our members are the guardians of people’s pensions and savings and many alternative investment funds are now lending directly to businesses and financing social housing and other essential projects.
With 85% of European hedge fund assets managed from the UK, members have been concerned about accessing European investors, hiring talent from the rest of the EU and continuing to trade on European markets. According to our survey, investment from Europe accounts for about 25% of capital managed by UK firms. Those firm also employ on average around 20% of employees who come from the EU.
We believe the UK government should seek to maximise Single Market access for the entire financial services sector, by hardwiring into a treaty the principles of market access based on equivalence, non-discrimination and reciprocity. However, we highlight, this shouldn’t come at the expense of retaining some flexibility for the UK to set rules for domestic and internationally facing business. The flexibility may be needed to align the UK regime with standards in other global financial services centres in order to reduce any regulatory duplication or conflict of rules.
The UK also could consider introducing a range of tax-efficient funds and securitisation vehicles to pool capital from investors globally, which would allow greater flexibility with investment strategies and instruments used than seen today. Equally, we suggest the government further develop the UK as an international capital market and encourage domestic equity and debt investment, which would also boost fund administration and custody roles.
If done properly, the UK’s withdrawal from the EU should not produce unnecessary disruption and maintain good trading relationships. We look forward to engaging closely with policymakers over the coming months as we seek the best possible outcome for our members.