Over a third of European asset managers are preparing for a “no-deal Brexit,” says a new PwC survey. Ireland and Luxembourg are likely to be the biggest beneficiaries of a post-Brexit transfer of functions out of the UK. Some 39% of European asset managers are looking at relocating functions to Ireland, while 36% cite Luxembourg as their location of choice. The time needed to apply to new regulators for authorisation is a key factor with both Ireland and Luxembourg currently taking six to nine months to process applications.
The results of the PwC survey warns that nearly half of European asset managers are struggling to be ready on time. 44% are still making preliminary assessments of their Brexit needs or have not started planning at all, while nearly a quarter (23%) do not expect to complete their Brexit transformation projects until 2021.
Many of Europe’s asset management businesses are working on the basis that they will face a no-deal Brexit with no transition period, the research reveals. However, while more than a third of asset managers now expect the UK to leave the European Union on 29 March 2019 with no deal, this survey of the industry shows that fewer than a quarter are close to completing their preparations for Brexit. The survey was undertaken in September amongst 52 European asset management companies, some having operations in Ireland, in advance of PwC’s 2018 EU Asset Management Summit taking place in Dublin’s CCD on 18 and 19 October attended by over 500 global asset managers.
PwC’s research suggests that the industry faces significant risks in the run up to Brexit, now less than 200 days away. Asset managers do not yet have a clear view of how Brexit will affect their products, people or their corporate structure. And while many firms are now working on the basis of a no-deal scenario – no deal and no transition – most are some way short of completing their Brexit projects.
Andrew O’Callaghan, Leader, PwC EMEA Asset and Wealth Management practice, said: “Asset managers are very worried that a no-deal Brexit is a real possibility - the industry needs much greater certainty from regulators and policymakers; for their part, asset managers can’t afford to wait any longer to start making definitive arrangements for the post-Brexit marketplace.”
Patricia Johnston, Leader,PwC Ireland Asset and Wealth Management practice, said: “As a gateway to the EU and the US and having the same common law jurisdiction as the UK, a world class centre for financial services with a highly talented workforce, Ireland is a great location for investment management companies to operate. Ireland is working hard to ensure that we have the capacity, including necessary infrastructure, to support the continued future growth of the industry. And with its friendly business environment and track record, we expect the heightened interest in Ireland, noted in the survey, to continue.”
The survey shows that 38% of firms are now expecting a no-deal Brexit in which the UK will move to trading on the basis of World Trade Organisation rules with no additional arrangements put in place. Just one in five (21%) predict an orderly exit for the UK from the EU with an agreed transition period.
PwC’s data also suggests that many firms are now running out of time to put arrangements in place for the post-Brexit landscape, raising doubts about their ability to continue marketing products, whether their corporate structures will be fit for purpose and how they will organise their people.
Less than a quarter ( 23%) of the asset managers surveyed say they are now implementing business structures for the post-Brexit environment, or that they have completed such work. Close to half say they are still making a preliminary assessment of their needs (35%) or that they haven’t started planning for Brexit (8%).
For many businesses, the possibility of a transitional period – which would last until the end of 2020 if a Brexit deal is agreed – has made little difference to the tempo with which they are progressing their Brexit projects: Three-quarters (74.5%) say that the transition agreement has had no impact on their speed of delivery.
Indeed, nearly two-thirds (61%) of asset managers have set a target completion date for their Brexit preparations prior to 29 March 2019, others concede that they will not finish their transformation projects until after the UK has left the EU. Some 16% expect to complete their projects during the transitional period, while 23% do not envisage finishing until 2021.
PwC’s survey shows 19% of asset managers intend to launch new products in the UK following Brexit, while 35% have plans for launches in the EU27. However, in the absence of a deal on passporting, equivalence or even a temporary permissions regime, it is not clear whether asset managers will be in a position to fulfil their ambitions.
PwC’s research suggests that many asset managers are considering moving a range of functions out of the UK as a result of Brexit. They are most likely to be thinking about moving sales and marketing teams (42% are looking at such a move), though compliance (19%) and portfolio management (17%) are also under consideration at many firms.
Where asset managers hope to employ third parties to ensure they will continue to have market access, following Brexit, the AIFM approach is the leading contender for such arrangements, though a number of firms are considering UCITS management companies, according to the research.
With many asset managers looking at relocating structures, firms are under pressure to consider how they might redeploy their workforce. More than half the asset managers in PwC’s research say that they are exploring ideas such as splitting employment arrangements across territories or asking staff to commute between one or more territories. Around a quarter are planning to ask staff to relocate to a new territory.
However, none of these options are straightforward, with potential compliance and tax consequences for both the asset manager itself and its staff. The lack of certainty about immigration rules in the UK and the EU27 in the medium to longer term also complicates things.
Andrew O’Callaghan, Asset and Wealth Management Leader at PwC, said: “With so little time left until the UK leaves the EU, asset managers must now make some fundamental decisions about how they will structure themselves for the future, but they are having to do so without a full grasp of the facts.”
O’Callaghan concluded: “Nevertheless, asset managers must not use the lack of certainty as an excuse to do nothing; while it is still possible to prepare for Brexit in time if firms prioritise their arrangements right now, further delay will mean they are almost certain not to be ready – in which case a no-deal Brexit in particular could cause such firms real problems.”
Notes to editors
About the research:
The survey was undertaken in September 2018 amongst 52 European asset management companies, some having operations in Ireland, in advance of PwC’s 2018 Asset Management Summit taking place in Dublin’s CCD on 18 and 19 October attended by over 500 global asset managers.