Overview

On 23 June 2016, the British electorate voted by a margin of 52%-48% to leave the European Union. Following this, the Prime Minister triggered Article 50 of the Treaty of Lisbon on 29 March 2017, meaning that the UK will leave the EU by 29 March 2019, unless there is unanimous agreement from Member States to extend this period.  

AIMA is actively engaging with policymakers, regulators and other industry bodies to ensure that the voice of the alternative investment management industry is heard at every stage of the Brexit process.  AIMA has established a Brexit Task Force consisting of fund manager and sponsoring partner service provider members to help guide our Brexit policy work.

In addition to undertaking a Brexit Survey mapping the exposures of members globally, the Brexit Task Force published in December 2016 a position paper intended for UK politicians and regulatory authorities that sets out our priorities for Brexit and the value of the industry to the UK.  We also propose a future UK/EU relationship based on equivalence, non-discrimination and reciprocity.  We are also due to publish a separate policy position paper for EU institutional recipients, including the European Commission, European Parliament and individual Member States.

In addition to these high-level papers, sub-groups to the Task Force are also working on two further technical position papers on: (i) the UK financial services regime post-Brexit, including a proposal for an amended UK private funds regime to enable the domiciliation of assets onshore; and (ii) tax issues.

Documents and articles

Legal Process 

Article 50 of the Lisbon Treaty defines the process by which a Member State can leave the EU, requiring a formal notification to be made by that Member State to the European Council of its desire to leave.  This will commence a two-year period during which a withdrawal agreement is to be negotiated and concluded by the UK and European Council acting by qualified majority, with the consent of the European Parliament.  Upon the entry into force of the withdrawal agreement or, failing that, the expiry of the two year period, the EU Treaties will cease to apply to the UK unless an extension is agreed unanimously by the European Council.  The European institutions and officials have repeatedly advised that no negotiations or preliminary discussions on the terms of the UK's exit can commence before an Article 50 notification has been received.    

The UK Prime Minister, Theresa May, notified the European Council on 29 March 2017 of the UK's intention to leave the EU.  She has also overwhelmingly succeeded in passing a non-binding motion through Parliament confirming that MPs will not seek to block the triggering of Article 50 at this point.  During a speech in January, she also made clear that the Government plans to give Parliament a vote on the shape of the final withdrawal agreement reached at the end of the two year negotiation period.

Future relationship between the UK and EU 

After a significant period of uncertainty involving the repetition of various permutations of the phrase ‘Brexit means Brexit’ by the UK Prime Minister, it has been accepted that it is unrealistic for the EU to permit full Single Market access for the UK whilst the UK does not accept all four freedoms, most importantly the free movement of persons.  To this end, Mrs May confirmed the UK will be leaving the Single Market.  She also confirmed that the UK will seek to sign bilateral free trade deals with other countries post-Brexit, thus it cannot remain a full member of the Customs Union.  Whilst leaving the EU, the Prime Minister stressed the UK Government’s intention to maximise future free-trade between the UK and the EU and to eliminate tariff barriers to as great a degree as possible.

There is still a question over the timing of the future UK/EU relationship.  Some EU officials have noted that any future trade deals between the UK and EU would only be able to be negotiated after the UK has formally left the EU, thus there would be a period during which the UK would have to fall back to WTO rules for its trading relationship with the EU. Transitional arrangements are, therefore, likely to become important to smooth the period before that new UK / EU relationship takes effect.

Implications for the hedge fund industry

There will be various direct and indirect consequences of Brexit for the alternative asset management industry, posing both risks and opportunities. Unanswered questions include:

  • the willingness of the UK legislators and regulators to place asset management at the front of their thinking as a UK growth industry post-Brexit;

  • the willingness of the EU to grant equivalence to the UK as a third-country under various pieces of EU financial services legislation;

  • the future of policy direction of existing and future EU financial services legislation, in particular the maintenance of private placement regimes under AIFMD and the Capital Markets Union project; and

  • the degree of access in the UK to skilled employees from the EU and beyond.

From the perspective of the hedge fund industry, greater legislative sovereignty for the UK government and regulatory authorities upon leaving the EU provides an opportunity for the UK to tailor its domestic fund management rules to improve their proportionality and global competitiveness, potentially by aligning them more closely with those of other international financial services centres such as the US, Hong Kong and Singapore.

Contact

If you have any questions in relation to AIMA’s Brexit work, please contact Oliver Robinson (orobinson@aima.org).