Pan-European distribution post Brexit: how are firms positioning themselves?
Richard Day, chief operating officer at Montlake examines why investment management firms are likely to lose Mifid distribution passports after Brexit and the strategies companies are using to overcome this
Insurance Investor editorposted on Tuesday, November 05, 2019
The angle that we are looking at this from is how investment management firms are primarily going to lose their Mifid distribution passport and how they are positioning themselves for a post-Brexit scenario.
This is having an impact on managers globally. If I look at the client make up that we work with there are the London-based managers who are headquartered here and many US managers who have chosen to put distribution teams on the ground in Europe have chosen London who will both be impacted and the same is true for Asia and Australia.
In terms of how firms are looking to solve this, there are a number of challenges. The single biggest challenge is that up to now the whole concept of an appointed rep type scenario hasn't existed across the pan-European landscape - so where there is a well-established model for people to come in and rent a FCA distribution license, the same doesn't exist or hasn't existed to date in other domiciles.
"The single biggest challenge is that up to now the whole concept of an appointed rep type scenario hasn't existed across the pan-European landscape."
There are a number of firms who have been looking at this conundrum and looking at ways that they may be able to get around this.
The one that the larger asset managers have gone down the route of is to simply look at boots on the ground and getting themselves a new license within the EU.
This certainly works for a State Street or Blackrock and the larger firms in terms of their licensing but it doesn't necessarily solve the issue that a lot of people who have been doing pan-European distribution jobs are happily settled in London with their families and so the idea of a move to Paris, Frankfurt or even Dublin doesn't necessarily work for the home life environment.
Whilst there is an ability for firms to get themselves authorised it certainly isn't going to necessarily tick all of the boxes for all of the people because some will feel that it isn't just about the regulatory license but it is also about the happiness levels of their staff and where they may want to live and work.
"A lot of people who have been doing pan-European distribution jobs are happily settled in London with their families and so the idea of a move to Paris, Frankfurt or even Dublin doesn't necessarily work for the home life environment."
If we look at other ways, aside from moving people physically, of getting regulatory support, this is where we move into the areas of what is known as a tied agent and specifically the proof of concept around tied agents being used in other European domiciles.
The domiciles that have been looked at are Ireland which being an English-speaking country means it is an easier choice for many although no tied agent has been approved.
There is also a firm that has gone to Portugal and is looking at getting themselves a Mifid license and then working on a tied agent model out of Portugal. This is clearly a bit more off-piste compared to the more mainstream domiciles in Europe. Malta also seems to be a solution that people are looking at.
There is definitely a view to looking at the tied agent solution but whether this will be a concept that is ultimately successful remains to be seen.
"People may be conducting UK distribution activity in one particular fashion and pan-European distribution in a different fashion."
If I look at the fund domiciles of choice, Ireland and Luxembourg, they seem right now to be a firm no but some of the peripheral southern European places like Malta and Portugal may be an option.
The last area to consider is around the concept of an existing regulated firm providing some level of chaperoning to staff. This would mean someone using their own regulatory license rather than going down a tied agent model and looking at ways that they can support the regulated activity, specifically as it related to distribution.
In my speech at the Fund Management Operations Summit, I will be looking at the concept of chaperoning and how this might look and operate from the perspectives of the way people are employed. For instance, people may be conducting UK distribution activity in one particular fashion and pan-European distribution in a different fashion.
This could involve technological solutions, behaviours in terms of how people acting and what they are doing in particular locations and diving into more detail.
Richard Day, chief operating officer, Montlake, will be speaking at the Fund Management Operations Summit in November 2019. You can find out more and sign up for the event here.