Legal briefing | Alternative Asset Management, Funds |

Travers Smith's Alternative Insights: Financial services policy in a post-Brexit Britain - Issue 14

Travers Smith's Alternative Insights: Financial services policy in a post-Brexit Britain - Issue 14

Overview

A regular briefing for the alternative asset management industry. 

It was always optimistic to hope that sticking closely to EU rules would persuade Brussels to give UK firms access to the single market, but now that any such deal seems to be off-the-table, the mood in the City has adapted.  UK policymakers are getting plenty of advice on how to regulate financial services, and there is a growing appetite for change.  While consistency with EU rules and international standards remains crucial, the UK can use its expertise in financial services regulation – and its ability to flex rules quickly as circumstances change – to its advantage.  No one is calling for a bonfire of regulations; indeed, in some areas, more regulation is needed.  But the calls for concrete action are growing louder.

Last week, the Alternative Investment Management Association (AIMA) and its affiliate the Alternative Credit Council (ACC) made an important contribution to the debate.  At a conference to mark the launch of AIMA's Vision Paper, Travers Smith partner Phil Bartram emphasised the need for ambition on the part of government and regulators, but also appealed for a holistic approach to the reform agenda.

 

Ambition is needed because there is a lot at stake for the UK, and a number of competitor jurisdictions – including the EU itself – are keen to take business from London.  That ambition should not be parochial.  Interventions will no doubt help to fuel investment in the UK's real economy and finance the green transition, but the UK also needs to preserve its position as an international hub.  For example, it should be easier for investors to set up shop in Britain, giving them access to the City's world-leading infrastructure and advisory community, even if the bulk of their activity extends beyond the UK.

As we pointed out in our wide ranging response to the government's recent consultation on the funds regime in the UK  – itself an encouraging sign that policy-makers are now ready to make changes – any strategy also needs to be holistic, because individual initiatives are unlikely to succeed unless all parts of the legal and regulatory framework are aligned.  We recommended the establishment of an asset management competitiveness unit – a permanent team in government responsible for monitoring and promoting the competitiveness of the sector.

AIMA's policy prescriptions are pushing in the same direction.  They include support for the non-bank lending sector and new forms of financing, including for asset managers that can provide growth capital, plugging the gap left by traditional lenders. In that regard, there is support for the new Long-Term Asset Fund (LTAF), which could unlock significant pension fund assets for the sector, while democratising access to private markets.  But, alongside the LTAF, other suitably regulated and tax neutral professional investor fund vehicles would be helpful, to position the UK as a ‘one-stop shop’ for professional investor fund management.  AIMA also calls for a review of the regulatory framework, especially AIFMD and MiFID II, to ensure that these are serving the regulator's objectives in a proportionate manner.

...While consistency with EU rules and international standards remains crucial, the UK can use its expertise in financial services regulation – and its ability to flex rules quickly as circumstances change – to its advantage...

AIMA's Vision Paper followed hard on the heels of recommendations from the IRSG – a practitioner-led body that advises both the City of London Corporation and TheCityUK – on the UK's approach to implementing the EU's Taxonomy.  Again, there is an emphasis on the opportunity for the UK in green finance, building on the ground-breaking and ambitious work of the EU.  The UK should start with detailed rules which are based on those established in the EU, recognising that many UK firms will have no choice but to apply the EU Taxonomy to their products, but learn the lessons from the EU's implementation process and facilitate adoption by UK firms, while also looking to build international comparability.  In the longer term, the UK can address some of the limitations of the EU Taxonomy.

Change for the sake of change is certainly not what the market wants: it can sometimes cost more to adapt to a better new rule than to live with a sub-optimal one.  But the UK does have an opportunity to improve its regulatory framework and, more importantly, to respond quickly to a rapidly changing financial services marketplace – perhaps especially in green finance and fintech.  There are signs that the UK is ready to grasp that nettle.

As Lord Hill, once the EU's financial services commissioner, put it at AIMA's conference last week, the UK will inevitably move in a global direction, and UK regulators want to be involved in setting global standards.  There is certainly the expertise in the UK to play that role, and the UK can move fast to establish a leadership position – as it has, for example, with reporting on the financial risks of climate change.  But so far there has been a lot of rhetoric, and plenty of opportunities for the industry have its say.  Concrete measures must now follow.

For more of our content on alternative asset management, please visit our designated hub on our website.

Key contact

Read Simon Witney's Profile

Get in touch

TRAVERS SMITH'S ALTERNATIVE ASSET MANAGEMENT & SUSTAINABILITY INSIGHTS

A series of regular briefings for the alternative asset management industry.

TRAVERS SMITH'S ALTERNATIVE ASSET MANAGEMENT & SUSTAINABILITY INSIGHTS