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Brexit: turning uncertainty into opportunity

Last month, senior financial professionals put the key issues and concerns of the financial services and wealth sectors on the table at the Goodacre JHC Brexit Briefing. As the nation braces itself for change on leaving the European Union, Andrew Watson, FIGARO Product Manager at JHC, shares the insights from the briefing and the opportunities for firms willing to adapt and innovate.

Firms have been left second guessing how the impact of Brexit will change their ability to conduct business on a global level. It has also presented the question of ‘what will this mean for London’s reputation as a leader in financial services’. Many firms are currently dealing with the increasing regulatory framework changes which have to be implemented into their businesses over the next 18-24 months.

In a statement published earlier this year, the FCA said firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with the implementation plans for legislation that is still to come into effect. [1]

However, the triggering of Article 50 is likely to change compliance and other regulations and the Prime Minister has now vowed to start proceedings before March 2017. This is likely to leave many firms speculating about how this will affect their ability to conduct business, as well as the steps that they can take to influence these crucial negotiations.

Passporting – the right of free passage for products and services into Europe – lies at the heart of this issue. Official data [2] revealed in September by the FCA highlighted serious concerns in this area. The findings showed that UK-based companies currently hold 336,421 passports to operate abroad under EU directives, outweighing the 23,532 passports issued in other member states to operate in the UK. Without Passporting rights, a firm’s ability to conduct business in Europe could be impacted.

The loss of Passporting rights in an exit deal has the potential to lead to firms moving some or even all of their business activities to other EU financial centers, in order to gain continued access to EU markets. The loss of Passporting rights could have a serious impact on their ability to distribute products and services throughout the EU, and therefore significantly affect the relationship many wealth managers have with their international client base.

When dealing with the authorities firms should focus on what they need to conduct their business. Your firm may need to serve a UK investor who is now a tax resident in Spain. Passporting currently permits you to do this, but don’t confuse your need to carry out this business with a need for Passporting.

Understanding the value of wealth management in the negotiations

Wealth management firms need to gain a clear overview of their business and how they can continue to thrive outside of the single market whilst addressing any areas that may be particularly vulnerable to risk.

Firms need to keep in regular communication with both the regulator and government authorities  during the negotiations and ensure that they have the key information that will allow them to convey what they do, the value of their services and what they need to conduct business.

Some of the questions that firms may want to consider are:

• Does this affect the firm’s ability to employ the best people?

• How many staff are employed in the UK, EU and elsewhere? What nationality are they?

• What is the firm’s value (tax contribution) to the UK and EU authorities?

• Where do the firm’s clients reside? UK, EU, or elsewhere?

Clear communication will be key

One of the ideal outcomes for the wealth management community would be for the new UK legislation to be tailored to the needs and benefits of wealth managers, which would help to create a more attractive, regulatory environment, proving hugely advantageous for many firms. However, this in itself poses a challenge in how will wealth management firms communicate their requirements to the regulator?

In order to be heard, the wealth management industry must join forces and communicate a strong, consistent message with clear requirements. Working with other firms and engaging with industry bodies and Brexit working groups, such as the TISA Brexit Programme or the Wealth Management Association (WMA) will provide the authorities with the insights that they need to make informed decisions during the Brexit negotiations.

UK firms must continue to lead the way

Looking beyond the implications of leaving the European Union, the UK has the opportunity to strengthen its global connections and become an even greater financial player internationally.

Historically the UK has been supported by its international links and is increasingly involved in global regulation. The Foreign Account Tax Compliance Act (FATCA), and the Common Reporting Standard, are recent examples of this trend for global regulation.

Whilst not ideal circumstances, the UK is in a position whereby we can now demonstrate that we will remain to be a global player and will continue to set the standards whilst being innovative and leading the way in wealth management.

Ultimately, if innovation and quality service is put at the forefront, this could be the time for wealth managers to shine, but failure to provide their clients with clear, sound advice during this time of uncertainty could lead to the risk of the UK losing its reputation as a global leader in financial services.

[1] https://www.fca.org.uk/news/statements/statement-european-union-referendum-result

[2] FT.com

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