Now that the UK is leaving the European Union, one challenge for financial services is developing a funds model that has international appeal, such as in the fast-growing Asia-Pacific region. That's the message of a UK industry think thank that has also opened a sister organisation in Singapore.
New City Initiative, or NCI, the think tank for asset managers, says that the UK needs a fund structure to compete with other entities in the Asia-Pacific market in order to improve firms’ distribution efforts.
At present, structures such as the European Union’s UCITS regime, which enables funds to be bought and sold across national borders without separate local registrations, has become an established feature of the global investment landscape, including in Asia.
UK asset managers oversee about £400 billion ($520 million) in funds for Asia-Pacific clients and many UK investment products sold to retail or institutional clients in the region are regulated by EU law, mainly the UCITS system or the Alternative Investment Fund Managers Directive.
The think tank’s report, Facilitating Connectivity: Strengthening UK-APAC Fund Ties, says that the UK should develop a fund brand to compete with UCITS and EU Alternative Investment Funds (AIFs). It says that NCI is willing to draw together the UK government and industry groups in efforts to create such a fund model. The study said that the UK should make use of the Mutual Recognition of Funds scheme operated in Hong Kong, and regulators should examine other mutual recognition programmes in other markets, such as those of mainland China. The UK should also sign at least one or both of the Asia Region Funds Passport (ARFP) or ASEAN Collective Investment Scheme (CIS) systems.
The call for a new UK system that highlights how “passportability” of funds and other financial services products is a key issue for Britain as it leaves the EU and seeks to forge new trading relationships. One benefit of regimes enabling funds to be bought and sold without local registration is that it makes it easier for funds to be amalgamated into larger ones, obtaining economies of scale and hopefully lower fees for end-clients.
The EU has not always exploited the benefits of its own fund regimes internationally, NCI said in its report. “Previous uncertainty about the future of delegation and the EU’s ongoing refusal to extend the much vaunted AIFMD marketing passport to core APAC jurisdictions (namely Hong Kong and Singapore) have damaged the EU’s reputation in APAC circles,” the report said. “As a result, some experts see this impasse as an opportunity on which the UK can capitalise. In addition, should post-Brexit equivalence fall short in trade negotiations, the impetus for the UK to create its own fund regime and to build in mutual links with APAC, and the rest of the world, becomes greater.”
“NCI believes the UK funds industry has an excellent opportunity to further embed itself in APAC, where a number of our members see the largest growth potential. Developing a UK fund brand to compete with UCITS and AIFs in the region would be one way of doing this, and would be beneficial for the UK and Asian economies,” Nick Mottram, chairman of New City Initiative, said.
Last year, the think tank created NCI Singapore, to spread its message and work in Asia. New City Initiative comprises 46 asset management firms from the UK and continental Europe, managing approximately £500 billion. NCI Singapore comprises 11 founding members.
Some time ago, this publication wrote about the development of pan-Asian fund markets and how a number of jurisdictions have sought to emulate the perceived success of the UCITS fund model.